Just in time for the 10th anniversary of the bitcoin white paper, Federal Reserve chair Janet Yellen and former Congressman Ron Paul have made a tidy pair of opposing statements on cryptocurrency. Yellen, speaking in Canada on Monday, expressed anxiety about criminals abusing crypto, and skepticism of its technical capacity. In the humbler confines of the Ron Paul Institute website, Paul devoted a column to slamming the Fed’s control of America’s “fiat currency.”
Yellen, speaking at the 2018 Canada Fintech Forum in Montreal, echoed familiar crypto-skeptic talking points. “Very few transactions are actually handled by bitcoin,” she said, “And many of those that do take place in bitcoin are illegal, illicit transactions.” She also worried about crypto’s role in terrorist financing and money laundering, and emphasized that bitcoin hadn’t proven itself either a stable source of value or an efficient means for processing payments. She did allow, however, that things could get better on the technical front: “There are hundreds of cryptocurrencies, and maybe something is coming down the line that’s more appealing” than bitcoin.
For his part, Paul also revisited old ground, starting from the premise that money backed by precious metals conveys “the true price of money,” as opposed to interest rates set by “the manipulation of central bankers.” He blamed central banks for disrupting market signals and feeding boom-and-bust cycles, and pointed out that the U.S. dollar has lost massive real-world buying power over the past century. Finally, he endorsed alternative currencies, and called for “exempting all transactions in precious metals and cryptocurrencies from capital gains taxes and other taxes.”
Cryptocurrency has become a ground for debates over the legitimacy of central banking. Arguably, crypto represents the first chance for a modern economy to explore legitimate alternatives to government money. America’s pre-Civil War system, with its 8,000 varieties of private currency, would be unworkable in a global economy. The gold standard, even if you think it’s a good idea, inherently lacks transparency. (Central-bank skepticism, it should also be noted, can too easily shade into anti-semitic conspiracy theory).
Under current U.S. rules, any purchase made using cryptocurrency requires the spender to note how much the price of the currency has fluctuated since it was acquired, then declare any gains or losses on year-end taxes. The resulting, nearly irresolvable complexity of paying taxes has been a frequent complaint among cryptocurrency adopters in recent years. Removing that hurdle, which doesn’t apply to foreign currencies, would give crypto a better chance to see if it’s a workable alternative to government-issued money.
But now more than ever, crypto boosters also have to grant that Yellen’s legal concerns are valid. Even if global banks and the Fed’s own paper cash are currently a bigger threat, the world doesn’t become a better place as cryptocurrency continues to give global criminals and rogue states more options for hiding and using their blood-soaked wealth.
The question that must be dealt with in coming years is whether it’s possible to preserve the upside of cryptocurrency highlighted by Paul, including its usefulness in countries with truly broken government monetary systems, while preventing the malign abuses that Yellen is rightly worried about. On a purely technical level, the answer may be no: Systems like Monero will never be able to distinguish the anonymous transaction of a pro-democracy activist from that of a drug lord. That could lead to a complicated endgame, in which crypto advocates get their Ron Paul-approved private money, while governments follow Yellen’s call for ever-stricter scrutiny of how it’s used.