If you had Canada proving the need for a censorship-resistant, store-of-value on your 2022 bingo card, well, you are smarter than me, but, here we are…
With the extraordinary invocation of the decades old Emergencies Act, Prime Minister Justin Trudeau acted to crush the self-styled Freedom Convoy of truckers who jammed the capital, Ottawa, several weeks ago to protest strict Covid vaccine policies.
For the truckers and their supporters, this was an act of civil disobedience. And yet Trudeau’s government froze demonstrators’ bank accounts and encouraged doxxing of contributors to their cause.
Not a Panacea
While Trudeau believed the step was necessary, he unwittingly proved how important Bitcoin can be to the cause of individual freedom worldwide. With Bitcoin, Ethereum and the rest of crypto suffering a profound selloff, the timing is important. The Canadian government’s action reinforces Bitcoin’s central anti-censorship thesis, and its utility. And that development is a decidedly bullish signal amid the noise of the last few months.
Now it’s time to take stock of what we learned. First off, Bitcoin is not a panacea. But it can (and does) bestow its holders with an invaluable monetary liberty. It is important, however, to clarify how Bitcoin can help, and to elucidate what it does not do.
Bitcoin is censorship-resistant, but not censorship-proof. Simply put, it’s pseudo-anonymous nature is most similar to cash that one uses in personal transactions. Cash does have limitations, as large transactions are reportable and moving large amounts across international borders without declaration is a serious crime.
Bitcoin is similar to cash in that regard, as large transactions with centralized exchanges are reportable and those exchanges are subject to regulatory oversight. Theoretically, the laws regarding physical movement across borders apply as well, but the ability for Bitcoin to be held in small hardware wallets makes those rules hard to enforce.
There are, however, three important ways Bitcoin differs from cash. First, it’s value is not directly linked to an infinitely printable fiat currency, but rather on how people value it as an asset with enforced scarcity. Much virtual ink has been devoted to that subject, as Bitcoin is already an alternative to rapidly depreciating currencies such as the Venezuelan bolivar and can grow into an alternative to more mature currencies.
More importantly, Bitcoin transactions do not require physical proximity, making it ideal for the global, digital world. It would be difficult for an individual in the U.S. to support a peaceful protest north of the border using cash.
Third, Bitcoin is far more portable, and, while transactions can be traced from one wallet address to another, it is relatively easy to hold large values of the commodity in those wallets, which themselves can be moved and hidden with relative ease.
The combination of differences is critical in this case as the government has no effective means to stop the use of personal wallets or transactions between them. Of course, that hasn’t stopped them from trying, with the officials sending letters to wallet providers and financial institutions. One wallet provider, Nunchuck.io, which protest organizers suggest have a large share of the crypto donated to the truckers, responded to the regulators by saying it “cannot” freeze its users’ money or prevent it from being moved because it does not have access to their digital wallets.
“We cannot ‘freeze’ our users’ assets. We cannot ‘prevent’ them from being moved. We do not have knowledge of ‘the existence, nature, value and location’ of our users’ assets. This is by design,” the group wrote in a tweet, showing a screenshot of an emailed response they claim to have sent to the court.
As amusing as it is to see Ottawa’s struggle to shut down Bitcoin, the government can block access to the banking system or force centralized exchanges to comply with their edicts. None other than Jesse Powell, the CEO of Kraken, pointed this out when he tweeted: “Please do not fund causes directly from custodial wallets. I’m sure freeze orders are coming. Withdraw to non-custodial before sending.”
That, however, does not mean Bitcoin has no value in these cases as has been suggested by many commentators. While access to the banking system can indeed be blocked, Bitcoin is seen as a long term savings vehicle as well as an alternative to fiat.
In both cases, the need for the financial system is overstated as long term savers will likely look to sell Bitcoin very slowly or far enough in the future for there to be different political leadership. In economies without stable currencies, Bitcoin is already a life-saving medium of exchange. In developed countries, the ability to store Bitcoin privately and engage in small transactions already exists and networks such as Lightning are growing rapidly.
So, what does this mean going forward?
While the Canadian episode is pretty much over, a line has been crossed. Nic Carter, the co-founder of Coin Metrics, observed on Twitter: “In a saner time, the international community would universally condemn the Trudeau regime for such banana republic tactics. Instead we have bitcoiners sticking up for themselves with little support.”
I believe the lack of condemnation and exposure of raw state power will be a wake up call to major investors concerned about their own governments’ willingness to seize their assets.
The idea that “it can’t happen here” is now a thing of the past. Bitcoin’s ability to hold wealth outside the financial system just became much more important for the observant global citizen. I suspect that this will prove to be a catalyst to a new group of wealthy converts as they digest the implications.
If so, the need for censorship resistance will have a profound impact when the dust clears…