The Great Crypto Race – Nicolas Valdez
Throughout my blog’s tenure, I’ve written on how technology impacts diplomacy, the pervasiveness of digital diplomacy, and why any of this is even important. This post will take a different turn.
I’ll be talking about cryptocurrencies and in short, this post will be about diplomacy’s impact on technology.
Competitions between the United States and the big bad adversary of that decade/generation have colored American history. JFK’s Administration ran in the Space Race. Reagan made an arms buildup a pillar of his administration. Coming administration’s will be thrust in the midst of a developing technological race with China. This is not a theoretical scenario, but one that’s absolute and it is already ongoing.
If I were to write on everything in the digital realm that China and the US share adversarial interests in, my hands would fall off. Hence, the focus on cryptocurrency in this post is out of respect for my hands’ lives and my need for them.
A cryptocurrency is a digital medium of exchange wherein traditional regulations, monetary and fiscal policy, are more or less useless. The immunity of cryptocurrency to traditional methods of financial control is due to the currencies leverage of blockchain, a time-stamped record of data that is encrypted and distributed/managed by a network of computers. This gives the currency transparency, decentralization or freedom from regulations, and immutability or the ability to make financial exchanges intransigent. State’s interests in cryptocurrency stem from citizens’ interests. They’re really really useful for skirting regulations. The digital Silk Road, an illicit market, utilized cryptocurrencies for most every transaction and since cryptocurrencies are immune to traditional currency sanctions, what’s to stop a country like North Korea financing nuclear operations with crypto exchanges, for example.
Harvard’s Kennedy School also thought that was a cool question so they ran a crisis simulation in which the White House Situation Room was the setting and North Korea’s bypassing of international banking, via Chinese cryptocurrency, was the problem.
In 2014, China began developing a cryptocurrency and has recently accelerated R&D in response to Facebook (a US gov proxy in this regard) and their own exploration of cryptocurrency, codenamed Libra. China and the US are vying for digital currency supremacy because it’s the future of financial transactions and is in effect, a proxy struggle between the two world hegemons. A digital currency would allow each countries government to control its money supply entirely and regulate capital distribution.
The capital distribution part is far more enticing to China as their state-sanctioned capitalist economic model gives them complete control over “private-sector” investment. Additionally, cryptocurrencies allow countries to skirt the international financial system, that by the way, is entirely denominated in American dollars.
That is the main reason why China and other non-Western states (looking at you Russia and Venezuela) are scampering for the digital currency finish line.
The threat of international financial independency is a national security issue for the United States. The Kennedy School recognizes it and the public should begin to as well.