Multi Polarity and Crypto
Why Global Currency Triumphs in a Divided World
It has seemingly become clear too much of the crypto space that the United States, through the SEC, seems to be out to go after the crypto industry. Not just exchanges in the US that failed such as FTX US, but also the most stable and risk averse onshore exchanges like Coinbase and Kraken, alongside Binance, which is jokingly referred to as a “cartel” due to its massive size and involvement in the space. The message is clear; crypto is illegal, exchanges should not operate, the United States should not be facilitating one of the largest technological advancements in modern history and the largest to date when it comes to payments. Why is this? Why is the United States, the global center for R&D and innovation, becoming a Luddite with crypto? What is it afraid of? For this, we must go back in time, to understand what the United States fears of losing.
Following the collapse of the Soviet Union, capitalism firmly took hold over the entire world economy. What little arguable demand economies are left in Cuba, North Korea, or Eritrea, are in fact only demand economies in name, as all countries have major informal markets and import-export regimes to acquire foreign currencies. With this collapse and rise of a global economy, we entered a period of Pax Americana, wherein the United States, now far and away the most powerful country in the world, established a de facto world order based on neoliberal economic and (generally) democratic principles. Rogue states that opposed this new status quo were largely eliminated like in the Middle East, limited in power like in Venezuela, or otherwise crippled by sanctions like with North Korea and now Iran. Whether these actions are justified or not on humanitarian, political or strategic grounds is not the topic of this article. The point is to show that following the collapse in 1991 up until around 2008, the United States had near total power over the world’s political system. Military dictatorships, oftentimes established by the United States as a response to the cold war, stopped receiving aid from the United States, and new democratic regimes rose that would also defer to Washington for strategic decisions.These regimes, like Menem in Argentina, the no longer PRI-dominated Mexico, and democratic Nigeria and South Africa, often held some sense of stockholm syndrome, with populations and ruling elites feeling a high sense of appreciation and respect for the United States.
The United States used this massive amount of power that it now had, and its new role as the head of a global world, initially mostly for ‘good’. Following the collapse of the Soviet Union, the European Union was formed to foster trade across the continent in 1993. A year later NAFTA established free trade relations between Mexico, Canada and the United States, dramatically improving Mexico’s economy, though initially causing a decline as local manufacturing industries were destroyed. The World Trade Organization was founded a year after as well, as Bill Clinton sought to create institutions for this new world economy on American terms. The American Dollar became the undisputed standard for world trade. The United States toppled Saddam Hussein and Muammar Gaddafi. Washington, it seemed, could do no wrong.
Yet, even in the rise of the United States, the beginning of its downfall also began. American industry and middle class jobs were increasingly lost due to Bill Clinton and George Bush’s support for unfettered free trade. While a net benefit economically for the country, this helped to further divide the country internally between the upper landed elite who held significant power over the government, as well as those associated with them, approximately 20% of the population, and the 80% which in some way worked to the benefit of this 20%. Whether this is “fair” is another question entirely, it is just how the system works, and inequality is historically the norm of any civilization, however this inequality is what has led to the rise of populism in American politics with Bernie Sanders, Donald Trump and AOC. Although in theory diametrically opposed in terms of policy, their goal is (at least publicly) the same; to improve the conditions of the 80%.
Now, what does this have to do with crypto? Well, American control over the world continually began to wane as the internet became more widely adopted. Sure, initially the internet and computers were the core reason for the American victory in the cold war, as demand economies failed to be able to compete with the massive benefits of free markets mixed with access to nearly endless information. Yet as American abuses of power in the eyes of much of the world continued, and the internet allowed Americans and many other professionals to create products from any location, the edge of the American economy began to wane as major foreign corporations formed. Crypto is, at its core, money built for the internet. The attributes for each are different, with some focused on being sovereign or immutable, private, anonymous, standard of value, medium of exchange, smart contract ‘fuel’, or any other reason. All of it is money/assets built for the internet. “While the (traditional financial) system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model”. These weaknesses included a lack of innovation when it came to underlying payment systems like SWIFT, which remain incredibly outdated. Additionally traditional institutions have a central point of failure. If a bank is compromised, you lose your money, which has happened in many developing economies. If you try to wire a North Korean bank, the transactions will be blocked and you will likely go to jail. Crypto fundamentally attempts to move away from a sovereign state creating the medium of exchange and in turn to create sovereign money. In the same way measurements and units of account have largely been standardized due to globalization in order to enable more efficient trade, and data and informational has largely been standardized, it makes sense that money, which is fundamentally data and a standard of measurement, should become standardized in such a way that does not rely on one power. Why should the American Dollar be used to buy Middle Eastern Oil? Or Chinese electronics? Or measure the economy of Turkey?
This is fundamentally the value prop of crypto at a very basic level: sovereign internet money for the world. This vision is diametrically opposed to America’s current system of control. The Pax Americana is built on American control over trade, payments systems and the global reserve currency. In the same way that Tokugawa Japan refused to change with the times to modernize its government and military thus becoming enveloped by enemies that did, draconian and luddite actions by one power to stop a technology that has benefits for others is ineffectual. This is the basic idea of the freeloader issue / prisoners dilemma. A key example of this, even during the Pax Americana, was the proliferation of nuclear weapons. Today, the United States, Russia, China, UK, Pakistan, India, Israel, North Korea and potentially in the future Iran have nuclear weapons. North Korea is a modern addition to this list, and despite American sanctions has been able to still maintain its economy, largely due to its reliance and trade with Russia and China. This has been critical for North Korea in order for it avoid what it believed could have been its fait: joined Libya and Iraq in their fates as fellow “axis of evil” members. In global shipping, shipping fleets are increasingly international and non-US owned in order to allow for trade with countries such as Iran and Venezuela. These operations are managed by multinational traders and corporations, which increasingly exist outside the reach of major nation states including the United States. China is increasingly the largest trading partner of most nations and largely does not engage in trade wars, with occasional exceptions as in the case of Australia. While the Western world seems currently united due partially to the war in Ukraine, this is likely an exception to the rule where Europe is increasingly trying to create its own sphere of influence and economy separate from the United States and the dollar. Early adopters of crypto have seen the potential use of it to avoid American regulation and power. A major early use of Bitcoin before tracking of transactions became more widespread was drug purchases, and most of the dark web continues to use currencies like Monero and Zcash. Terrorist cells have used crypto, as has North Korea. These are often cases that are most actively pointed to by the United States in spite of the fact that these account for a vast minority of transactions. The reason for this is partially framing the entire space negatively, trying to avoid more users. But it also reflects the realization of the American government that this is money that at its core it cannot control, it can only control what aspects of the money interact with its own financial systems.
This is not to say that China and Russia necessarily like crypto. After all, China banned crypto publicly as it was a major means of capital flight from its highly controlled capitalist economy. However, it is far more likely that with time, as the world moves to a multi-polar world with the United States, Europe, India and China all having their own spheres of influences along with several other countries, crypto currencies will become adopted explicitly because they are not controlled by any one country, and as assets become increasingly digital and less tied to nation states and their monopoly on sanctioned violence this will continue even further.
In summary, the decline of the US and the rise of a multi polar world will mean the need to establish a new medium of exchange, one which increasingly will likely be cryptocurrencies in some form in order to avoid another nation state liked the United States taking advantage of its financial monopoly on world trade to print debt and punitively punish other countries over diplomatic disagreements.
