The most important topic in the bitcoin space this week has to do with Microsoft founder Bill Gates’s Reddit AMA. During this question and answer session, Gates was asked for his thoughts on cryptocurrencies and shared a rather negative point of view.
In general, Gates sees issues with bitcoin and other cryptocurrencies due to their potential anonymity. From his perspective, this enhanced privacy for digital transactions is overly helpful for terrorists, kidnappers, and other types of criminals who wish to evade detection from law enforcement officials.
While it is likely true that some criminals are benefiting from the potential anonymity provided by cryptocurrencies, this is not necessarily a bad thing because the alternative is that some centralized entity — likely a government or traditional financial institution — is able to track every online payment and have complete control over the world’s various forms of money.
Let’s take a deeper dive into this topic.
What Gates Said
First, here are the two comments from Bill Gates’s Reddit AMA related to cryptocurrencies:
“The main feature of crypto currencies is their anonymity. I don’t think this is a good thing. The Governments ability to find money laundering and tax evasion and terrorist funding is a good thing. Right now crypto currencies are used for buying fentanyl and other drugs so it is a rare technology that has caused deaths in a fairly direct way. I think the speculative wave around ICOs and crypto currencies is super risky for those who go long.”–Comment from the discussion I’m Bill Gates, co-chair of the Bill & Melinda Gates Foundation. Ask Me Anything.
“…anonymous cash is used for these kinds of things but you have to be physically present to transfer it which makes things like kidnapping payments more difficult.”–Comment from the discussion I’m Bill Gates, co-chair of the Bill & Melinda Gates Foundation. Ask Me Anything.
To clarify Gates’s first point, the main value proposition of bitcoin and other cryptocurrencies is the censorship resistance they provide rather than any potential privacy benefits. Anonymous digital currencies have existed in the past; the key innovation with bitcoin is its resistance to outside control or government takedown.
When You Think About It…
Gates goes on to add that the government’s ability to prevent money laundering and terrorist financing is a good thing that bitcoin may disrupt. While this sounds all well and good at first glance, one has to consider the full implications of this statement. It implies that governments should have full control over the financial system in order to stop bad actors.
While Gates may be fine with the U.S. government tracking all online financial activity, what does he think about the same system being implemented in places like Venezuela, Cyprus, and other nations where centralized control over the monetary and financial system is abused by the government rather than simply used as a tool to protect the local population from criminals or terrorists?
After all, governments have had very different definitions for terrorists throughout history.
The Bottom Line
The fact that governments cannot control bitcoin is the crypto asset’s key value proposition. With this new form of money (or at least a version of it that enables better privacy), governments are unable to implement negative interest rates, hyperinflate the money supply, surveil everyone’s online transactions, seize assets whenever they want, and more.
In other words, bitcoin is a hedge against the negative aspects of a cashless society.
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