January 31, 2023

Photo Credit: Anthony Quintano – CC BY 2.0

On January 31 of last year, Oliver Sullivan got in touch attorney monthly that the growing list of countries “that have completely banned cryptocurrencies includes China, Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh and (as of this month) Kosovo. Forty-two others have enacted related restrictions that ban crypto exchanges or restrict banks’ ability to engage with crypto.”

Compare that to the United States, which is increasingly looking like a financial backlog, with shady crypto depositories blowing up federally-insured banks; the collapse of publicly traded crypto mining stocks whose business model is to pump more fossil fuels into the atmosphere to solve complex math problems that have no productive purpose; $8 Billion in Client Funds Lost on FTX Crypto Exchange Promoted by Media Darlings on TV; and, of course, major law firms that spent years getting fat before federal regulators after the shilling for the same crypto firms in crypto bankruptcy.

On NBC’s Meet the press On Sunday, December 18, Senator Sherrod Brown, the chair of the Senate Banking Committee, was asked by host Chuck Todd if crypto and the massive scam at FTX hadn’t shown that there is “a huge vulnerability in our system.” Senator Brown replied as follows:

“We had our sixth hearing on crypto to educate the public about its dangers. Not just the Ponzi scheme you’re talking about, and not just the lack of consumer protection or regulation, but also the threats to national security from Korean cybercriminals, the drug and human trafficking and the financing of terrorism and all the stuff that comes out of it Crypto coming. ”

Let that sink in for a moment. Ten other countries also found crypto to be a national security threat and banned it. The US knows it is a national security threat but has allowed it to be shown to its citizens in TV Super Bowl commercials.

Todd then asked Brown if crypto should even be legal in the United States. Brown replied that it would be very difficult to ban it because it would go overseas, “and who knows how that’s going to work out”. (You can watch the full exchange between Todd and Brown from minute 7:43 here Meet the press link.)

Actually already already know how crypto-going offshore will work. FTX’s principal business entities were registered in Antigua and Barbuda, with physical headquarters in the Bahamas. But if selling or trading crypto was illegal in the United States, we would not currently be looking at the 2.7 million user accounts on FTX.US who have been robbed of their life savings. Nor would we look at another international financial scandal right now, immortalized by a US citizen being compared around the world to another US Ponzi artist, Bernie Madoff. How many times can the US be at the center of global financial scams before there is a flight of capital out of the US because our financial safeguards are no longer trusted?

In fact, the issue of capital flight was raised in a speech last Wednesday by Christy Goldsmith Romero, a commissioner of the Commodity Futures Trading Commission, a federal regulator. Romero spoke to audiences at the University of Pennsylvania’s Wharton School and Carey Law School on “Crypto’s Crisis of Trust: Lessons Learned from FTX’s Collapse.” On the subject of capital flight, Romero said:

“Financial markets are heavily dependent on public confidence. Without this trust, the financial markets would not be able to help entrepreneurs and corporations raise capital and manage risk. When financial markets and key institutions lose public confidence, capital flight ensues and economic activity slows.”

And what exactly has the US come up with in terms of innovation, long-term job growth, or scientific breakthroughs from our 14-year nightmare of crypto experimentation and millions of ripped-off consumers? Congressman Jake Auchincloss (D-MA), who holds degrees in economics and finance from Harvard University and MIT Sloan, summed it up brilliantly at a House Financial Services Committee hearing on Dec. 13. Auchincloss explained:

“I would like to close, really with comments directly to the wider industry. I have long said that I am neither a crypto bull nor a bear. My job as a policymaker is not to deliver new products or technologies, but rather to advance laws and regulations that protect consumers, maintain market integrity, and advance the US dollar as the world’s reserve currency. And I maintain this market and technology agnostic position. I think it’s appropriate. We need strong and clear rules from Washington here.

“But I would like to say that my patience with the crypto bulls is waning. It’s been 14 years and the American public has done it heard many promises, but has seen many Ponzi schemes. It’s time for crypto to give up or shut up. It’s worth noting that a few years ago, ARK, the innovation investor, identified five general-purpose technologies of the future: DNA sequencing; artificial intelligence; Robotics, energy storage and blockchain. And yet, these first four disruptive technologies have already spawned breakthrough innovations that are impacting my constituents in their daily lives. Blockchain has previously delivered white papers and podcasts on Bitcoin and Doge, NFTs, DeFi and more. And it’s all interesting; it’s even exciting; but none of them have achieved product market fit on a large scale. And it’s time for blockchain investors and entrepreneurs to build things that matter or lose more credibility.”

Auchincloss is far from the only person who thinks crypto and blockchain are failed experiments or delusional pipe dreams. On June 1 last year, more than 1,600 scientists and software engineers sent a letter to congressional leaders and committees that oversee US financial markets. The letter’s signatories included employees from Google, Microsoft and Apple, as well as respected technology experts with PhDs from the University of Oxford and MIT. The letter summarized their findings as follows:

“We strongly disagree with the narrative – being put forward by those who are financially involved in the crypto-asset industry – that these technologies represent a positive financial innovation and are in any way designed to solve the financial problems faced by them ordinary Americans face…

“As software engineers and technologists with deep expertise in our fields, we dispute the claims made over the past few years about the novelty and potential of blockchain technology. Blockchain technology cannot and will not have transaction reversal or privacy mechanisms as they are contrary to its base design. Financial technologies that serve the public must always have anti-fraud mechanisms and allow a human-in-the-loop to reverse transactions; Blockchain doesn’t allow either.”

How many more millions of US citizens will have their life savings embezzled by crypto scammers before Congress takes strong, meaningful action against crypto?

This article first appeared on Wall Street on Parade.

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