A political wrecking ball
Earlier this month, crypto disrupted U.S. politics—and not just in the usual amusing-but-slightly-pathetic way.
The Senate was all but ready to vote on a trillion dollar infrastructure bill, when a last-minute provision was snuck in, one that dramatically expanded reporting requirements for non-custodial crypto actors, including miners and node operators. A small yet active cadre of crypto-native D.C. watch dogs caught the change and sprung into action. Over the course of a week, leaders across the crypto industry and more than a handful of high-powered CEOs and entrepreneurs lobbied Congress to amend the bill.
Though the outcome was disappointing—the original provision eventually prevailed—the process was remarkable. The uproar that the amendment sparked ended up forcing the Senate to delay by multiple days the final vote on the time-sensitive bill, which included a Covid relief package.
Against all odds, what used to be a fringe contingent of techno-futurists, anarcho-libertarians, and recovering poker players had morphed into a political wrecking ball. Crypto had dragged the American legislative system to a screeching halt.
Crypto’s changing ethos
The significance of this series of events was not lost on anyone. Media outlets like The Wall Street Journal (“Bitcoin Fans Are Suddenly a Political Force”), The Washington Post (“How Cryptocurrency Became a Powerful Force in Washington”), and Politico (“Washington wakes up to crypto influence amid infrastructure fight”) joined a chorus of powerful voices declaring—some with excitement, most with alarm—a new chapter for the crypto industry.
Is there, though, a deeper significance to this landmark moment, beyond the external attention and media buzz? The stalled infrastructure bill indeed seemed to drastically alter the public’s perception of crypto and its power. But, even more fundamentally, it laid bare an evolution in crypto’s own ethos.
A common thread has tied together crypto’s disparate parts and sub-groups since its inception: an identity of otherness, and a conscious separation from pre-existing institutions, be they political, economic, financial, or cultural. Bitcoin was born in the aftermath of the 2008 Financial Crisis as an alternative to sovereign currencies. The animating vision behind Ethereum was (and remains) a worldwide web free from the feudal rule of Silicon Valley’s tech behemoths. DeFi has grown into a parallel and largely self-enclosed financial system. Even the most successful cultural-artistic crypto projects, such as cryptopunks, are conspicuously and self-consciously unconventional.
Of course, despite the prevailing separatist ethos, crypto has seen various attempts to buck the trend and accommodate legacy institutions (remember “blockchain not Bitcoin”?). But to date, these attempts have largely been a footnote to the story of crypto—a story that has been written by individuals and movements with utopian, at times revolutionary, ambitions.
Until now, perhaps.
The stalled infrastructure bill in many ways marks a new chapter in crypto’s story. At no point over the past decade would it have been conceivable for the entire industry to galvanize around a political lobbying campaign—not just because crypto was powerless, immature, and rough around the edges, but also, I would argue, because there was a strong undercurrent of separatism and disengagement that prevailed for the larger part of a decade.
This founding ethos has started to wane, as evidenced in no small part by the change of (unofficial) leadership. For years, quirky futurists, eccentric coders, and unstable CEOs jockeyed for position as the industry’s standard bearers. Now, U.S. senators, hedge fund moguls, and buttoned-up tech billionaires seem to carry the mantle—old guard converts that have suddenly “seen the light.”
Crypto is undergoing a remarkable process of institutionalization, even de-radicalization, before our very eyes.
Standing at a crossroads
This trend is often left unaddressed, hidden behind a hazy conception of “mainstream adoption” that everyone seems to embrace. Yet it has opened, or at least widened, a critical ideological rift.
When El Salvador announced it was making Bitcoin legal tender, the move was met with raucous applause from crypto supporters. But that enthusiasm started to fracture when details of the proposed legal change surfaced. Scores of Bitcoiners sounded the alarm when they learned that the government of El Salvador would, under the new law, require business owners to accept Bitcoin as payment. In the debate that ensued over the law, two camps emerged. In one corner stood the revolutionary idealogues, who argued that the law’s coercive provision flew in the face of Bitcoin’s core ideals of individual sovereignty and freedom of choice. In the other corner were the conservative pragmatists, who acknowledged that any state-level adoption of Bitcoin would necessarily involve some sort of ideological compromise.
These fault lines are evident elsewhere in crypto. In June, the Harvard Law School Blockchain and Fintech Initiative (HLSBSI) submitted a proposal on Uniswap’s governance forum to allocate $1 million UNI tokens (about $25 million) from the protocol treasury to a political lobbying campaign for DeFi, presumably in light of increased scrutiny and regulatory pressure. In response, a variety of Uniswap community members expressed their opposition to what they deemed to be a misguided, self-defeating initiative. A similar fracture emerged after dYdX announced they would blacklist American crypto users for their retroactive token airdrop. Some were exasperated that a “decentralized” protocol would cave to legal restrictions, while others applauded the move to comply with regulations.
What I’m describing here is not at all the familiar bickering between crypto camps, what’s colloquially known as “toxic maximalism.” Rather, this is a schism that transcends tribal loyalties and gets to the heart of crypto’s ultimate purpose: should crypto strive to create a pristine system, unhampered by the outmoded structures of traditional society, or should it take a more accommodationist approach to mainstream political, economic, and cultural institutions.
For most of its life, crypto never truly had to face this dilemma. In its early days and even in the heat of the 2017-2018 hype cycle, crypto was by and large a fringe movement. True believers clung to it with fervor; skeptics dismissed it as fantastical; opportunist speculators came and went. But now, after a stretch of remarkable growth, crypto stands at a crossroads between further institutionalization and a recommitment to the separatist, utopian ideal.
This dilemma is not merely theoretical. Should crypto have an organized political lobby? Should Bitcoin’s proponents work directly with centralized governments for adoption? Should DeFi protocols look to banks and financial institutions as potential partners, instead of as adversaries? Should crypto-native artists, curators, and cultural venues collaborate with their mainstream counterparts? Or, should crypto reject ideological compromise, avoid institutional accommodation (come what may), and return to its revolutionary roots.
Framing the issue: how to pursue change
This dilemma may be new for crypto (or if not entirely new, at least considerably more relevant nowadays). But speaking generally and historically, it is not novel at all. Nor, for that matter, should we be surprised that this is a dilemma crypto now confronts.
For centuries, nascent ideological movements with world-changing aspirations have dealt with some version of the same challenge. Radical political groups invariably struggle to maintain their revolutionary spirit after gaining power. Religious sects diverge sharply on whether their adherents should pursue lives of cloistered virtue in closed-off communities, or whether they should engage with the material world in order to uplift it, even at the risk of diluting the religion’s core values and practices.
With respect to crypto, it might appear that this dilemma is simply a tradeoff between what is ideal and what is practical. In this framing, both sides of the debate assume that, in principle, crypto ought to adhere as much as possible to utopianism. The question then becomes the extent to which idealism must be sacrificed, in practice, for the industry to survive and flourish. Implicit in this framing is the assumption that there is no intrinsic value in engaging with traditional structures and institutions. A truly separate utopia is desirable but unfeasible. There is a need for concessions to reality[1].
Yet this framing of the dilemma as utopianism versus a slightly-more-pragmatic utopianism misses a third, fundamentally different approach. What if the utopian impulse is not just unworkable in practice, but actually undesirable in principle? What if engagement with traditional institutions is actually laudable and not just a concession to reality? What if, in a word, crypto should strive to be not a revolutionary movement, but a reformist one?
These questions will surely strike the average crypto supporter as heretical. But they also help us to get to the heart of the issue, for ultimately the question at hand concerns not just one’s view of crypto, but of the world crypto aspires to change.
If we believe, for instance, that nation-states with sovereign currencies are fundamentally incompatible with freedom, or that financial institutions and banks are rotten to the core, then we will have no patience for compromise or accommodation. But if our traditional political, economic, and cultural institutions hold some wisdom and value, despite the fact that they often fail us, then there is something in them worth preserving, and crypto should not become a siloed-away system.
A middle path forward
I want to suggest that there is value in both impulses, revolution and reform.
In the revolutionary approach, there is an expansiveness of vision, a dissatisfaction with the status quo, and a creative outrage. These were particularly conducive to crypto’s early days, as they attracted individuals who were willing to commit vast amounts of energy and resources to a fringe movement.
In the reformist outlook, there is a certain humility and gratitude, a recognition that complex systems are difficult to build from scratch. The mandate of the reformer is to strike a delicate balance between “the two principles of conservation and correction,” as a great philosopher of reform once put it. For the crypto reformer, in particular, this means working to make political institutions more free, financial institutions more fair, and cultural institutions more democratic—but not doing away with institutions entirely.
Needless to say, these dueling philosophies of change and progress are not easily reconcilable. We—those of us who are committed to the long-term success of crypto—would do well to recognize that this conflict is often at the heart of many value-laden tradeoffs that crypto must make. At least as a first step, we ought to talk openly about these philosophical differences, instead of burying them, as we often do, behind obscure technical debates.
But ultimately much more is required beyond just apprehending this basic conflict and its many manifestations. What’s needed is a middle path forward.
Indeed, throughout history, movements that could not find this middle path have failed. In the decades following the American Revolution, the country was gripped by a debate between the Federalists and the anti-Federalists over the sustainability of the post-war system of government (the Articles of Confederation). The Federalists advocated for a more powerful governing structure, even with the awareness that doing so might partially compromise the revolutionary ethos of liberty. The anti-Federalists opposed any such dilution of the country’s founding ideals. The Constitution that was eventually ratified in 1787, after years of debate, made necessary changes to the country’s crumbling political system, but it also preserved the core values of the revolution in its robust Bill of Rights. At this critical early juncture in its history, America managed to find a middle path.
Now crypto must do the same. We cannot give up on the core revolutionary ethos, for without it, crypto would lose its guiding identity. But the hardened separatism that prevailed for most of crypto’s history is no longer tenable. Engaging directly with the groups and structures that have failed us is not a sign of weakness, but of strength.
The middle path between revolution and reform, between utopianism and realism, between separation and cooperation—this path is not well-trodden or well-defined, nor is it free of obstacles. But it is the road that must be taken.
[1] Nic Carter raises an important objection to this simple framing: sometimes it is actually more pragmatic to opt for the revolutionary model, since this approach might win more concessions and set a new and more favorable equilibrium. As Nic put it to me, “there’s a pragmatism involved in being a revolutionary.”
AUTHOR(S)
Bitcoiner who fell down the DeFi rabbit hole. Research and investment analysis @MechanismCap . Nothing I say is investment advice.