perspective

Who Should Profit from Crypto?

It’s always all about the money, and never more so than when talking about cryptocurrencies. They’re touted as being about liberation, but really they’re about taking our revenues and redistributing them to billionaires.

Governments have sought to control money distribution ever since there have been governments. There are entire Anglo-Saxon kings (shout out to King Æthelweard) whose names we know only because of coins dug up centuries later by metal detectorists.

It would be nice to think this was because rulers were concerned about spreading prosperity by ensuring a reliable currency, and I’m sure that’s partly true. But the underlying reason has always been that coining/printing money is incredibly profitable. In very crude (and slightly misleading) terms: printing a $100 bill costs around 10 cents; it sells for $100; so that’s $99.90 in profit for the government right there.

Anyway, this was always one of the (if not the only?) interesting things about cryptocurrencies like Bitcoin: by taking the power to issue money away from countries, governments would lose the ability to profit from our need for a means of distribution and exchange, and citizens would gain it for themselves. So it’s not surprising that governments want to stop that happening.

Last week, Uganda became the latest country to launch a Central Bank Digital Currency (CBDC), which will use the same kind of blockchain technology that underpins Bitcoin to create a mobile-first version of the country’s shilling, and thus attempt to negate the appeal of crypto. Perhaps more importantly India, which leads the world in crypto adoption according to some measures, plans to do the same. 

“This will only make it easier to transact. It will also reduce paper consumption and will be faster to transact than the banking system. But it will also have traceability,” said the Indian Commerce and Industry Minister.

For most people in Western countries, the replacement of cash money by CBDCs would make very little difference because the vast majority of transactions are done electronically already; but for criminals, it would be disastrous. Accustomed to being able to use cash in huge quantities to hide their transactions, cartels, traffickers and others would have to invent new ways to find anonymity. (Inevitably, they’ll find it, but it will be more expensive, thus making their crimes less profitable.)

The European Central Bank is moving forward with its own plans to introduce a digital euro, and Piero Cipollone, a member of the ECB’s executive board, gave this fascinating interview last week about what that would look like (I think what he’s describing looks really good, for what it’s worth). A key insight is that, as electronic payment methods have spread, Europeans have become ever-more reliant on foreigners for processing transactions. “It … makes us vulnerable: we depend on others for our money and this can be weaponised against us. Ten years ago we weren’t facing this problem, because cash was king,” he said.

He called the payment processors that dominate transactions “international”, but in reality they’re American. Which brings us to a really interesting exception to the general global movement towards CBDCs: in the U.S., President Donald Trump has ruled the idea out completely, because it would “threaten the stability of the financial system, individual privacy, and the sovereignty of the United States”.

I think concerns about CBDCs’ impact on privacy are very overstated, considering most of us are already giving away ample data about our financial lives to banks, Apple, Paypal, and whomever, for them to do with what they wish, and it is particularly odd that the White House is stopping the Federal Reserve from issuing a digital dollar on privacy grounds while encouraging private companies to do so in the form of stablecoins like Tether’s USDT.

“The difference between a CBDC and a stablecoin like USDT is simple,” said Tether CEO Paolo Ardoino last week. “One belongs to the people. The other belongs to the state.”

That is obviously nonsense. Leaving aside the facile distinction between “people” and “state”, the idea that a digital dollar run by a democratically-overseen Central Bank like the Federal Reserve would somehow be less of the people than one run by a private company based in a foreign country whose president boasts of being a dictator (as El Salvador’s Nayib Bukele has done) is so idiotic it makes my brain hurt.

As so often with Donald Trump’s White House, this is all about the money and who gets it. The profits from issuing currency are called seigniorage, an old French term meaning that which belongs to the seignior or lord. By getting the Fed out of the CBDC business, and instead encouraging private companies to issue stablecoins, the White House is just redirecting seigniorage from the budget towards political allies, such as Trump’s own children. To be honest, I’m sure good old King Æthelweard did the same thing back in ninth century England, but you would have hoped that, 1,200 years later, we might have moved on a bit.

How much money are we talking about? Well, at the end of the month we’ll learn how much Tether made in profit in the third quarter. My money is on it exceeding its already record-breaking $4.9 billion haul from Q2. Its smaller rival Circle meanwhile is predicted to make revenues of more than $6 billion a year by 2028. Any Americans reading this: if the Federal Reserve had issued a CBDC instead of letting private companies do it, that money would be yours for spending on public services. Instead it’s being routed into right-wing media, political donations and the pockets of well-connected billionaires.

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.