I don’t usually feel like patting the Federal Reserve on the back, but today just might be an exception. Perhaps it’s the fact that I’ve come to expect the government to screw up, or just the fact that I am endlessly fascinated with bitcoin’s potential, but I think there’s a great deal to feel good about in how the United States is approaching cryptocurrencies these days.
The Federal Elections Commission recently approved bitcoin donations to political campaigns, and although the $100 contribution cap limits its utility, it’s an important first step. A number of US state regulators are working on writing regulation that provides some clarity on the rules surrounding virtual currency and related consumer protections. Even that slow-moving monolith affectionately known as the Federal Reserve is starting to form an opinion – and astoundingly, it’s not bad at all.
Let’s take a step back a from domestic politics to the current international landscape. Today, the US remains the uncontested world hegemon. India is the world’s largest democracy, and we’re up to our eyeballs in debt with China, but as far as both political power and national wealth, the United States is still unparalleled. We seem to be doing our best to relinquish that position, however – our education system leaves much to be desired, particularly in the crucial STEM fields. According to a number of studies, American fifteen year olds lagged far beyond most Asian countries on an international math, science, and reading test. Although China as a whole didn’t participate, Shanghai crushed us — and everyone else — taking the top slot in all three subject areas. It’s not just China, either : Estonia is now teaching coding in its primary schools. Some will argue that many of the best programmers are self-taught, but no harm in getting an early start.
Much of that power and wealth that has brought the US to prominence originated from innovation in STEM fields, and a lot of that talent was imported. At the moment, however, we’re also not doing terribly well in the recruiting department. If we don’t get our act together in facilitating immigration for highly skilled individuals, we risk losing access to a tremendous pool of human capital. Granted, it’s a bit dated, but this study by the Kauffman foundation shows that in Silicon Valley, over 50% of startups were founded by immigrants, and in 2005 alone those companies generated a cool 52 billion dollars in revenue. Not bad.
Stats like these only serve to highlight the urgent need for the US to loosen the legislative environment around immigration, particularly where highly-skilled workers are concerned. Despite the clear benefits it brings, this is a painfully slow and highly politicized process, and perhaps the only reason bitcoin hasn’t suffered the same fate to date is that it is not closely associated with one side of the aisle.
Whereas the United States has great room for improvement in both its approach to education in STEM fields and its policies toward immigrants, one key driver of innovation where it hasn’t failed yet is in its approach to virtual currencies. Bitcoin is still in its nascent stages. As such, there are gains to be had from first mover advantage, not just from an entrepreneurial standpoint but from a regulatory one as well. Bitcoin’s origins are murky, and since no country can claim ownership, it truly is a global project.
It’s becoming increasingly evident that Bitcoin, both the currency and the protocol have the potential to significantly change the direction of the next twenty-plus years. What direction that ends up being, however, remains to be seen. And because the landscape is still largely malleable, it offers a unique opportunity for a power other than the United States to rise to dominance. Given the initial excitement of the Chinese markets toward bitcoin, and the instrumental role they played in driving up prices dramatically at the end of 2013, it seems that China would be well poised to assume that role.
I am not advocating for a global political landscape in which China is the ruling power, or more broadly one in which Bitcoin is the means through which one country rises to dominance over another. There are few periods in history, however, in which we did not see this type of geopolitical system in action. Perhaps I read too much Kindleberger in college, but I don’t think it unreasonable to argue that a system with one clear hegemon is more stable than one in which many nations share similar levels of power. Whether in fifty years that is the US or another country remains to be seen, but I would be surprised if bitcoin didn’t play a role in determining the outcome. At an absolute minimum, widespread adoption of bitcoin has the potential to detract from the dollar’s defacto status as global currency, and offer places like Panama and Zimbabwe which currently use the USD a more neutral alternative.
The other week I quipped on Twitter that China enjoys banning things I’m into (bitcoin obviously, and I work at Facebook). What these things have in common is not that I am involved with them (although my ego would love to believe otherwise) but that they are powerful. They have the power to shift behaviors and paradigms of human interaction.
The Chinese government is clearly afraid of bitcoin, which is a testament to its potential. If it weren’t disruptive, they wouldn’t bother banning it. Even the bans to date, however, come across as half-hearted. Perhaps Xi Jinping and the rest of the Chinese government are just trying to keep a close eye on the situation while they await developments and formulate a long-term strategy. What I find most fascinating is that other governments, particularly the Chinese, would be well poised to capitalize on that potential rather than suffer from it if they chose to strategically guide its adoption instead of banning it altogether. Eventually these things come to a head, and it’s not often pretty when they do.
As Marc Andreessen mentioned in his recent interview with the Washington Post, the Snowden revelations have seriously undermined international trust in American tech industry – and this is just the latest in the saga of reasons for which many countries don’t like us in the slightest. They’re friendly because it’s necessary, but there’s no love lost. Insofar as bitcoin offers the opportunity for many governments to add a degree of separation between themselves and the US by cutting out dependence on the dollar, it is a highly appealing proposition, but at the moment this is not being reflected in these countries’ legislation. By forging an environment that facilitates rather than hinders bitcoin adoption, the United States has the opportunity to stay ahead of the international financial game. It will be interesting to see whether the US is able to keep the momentum up.