Alex Gladstein, of the Human Rights Foundation, explained in an article last year that crypto‐critics should look past their day‐to‐day experience “where they benefit from liberal democracy, property rights, free speech, a functioning legal system, and relatively stable reserve currencies like the dollar or pound.” Gladstein followed with an assessment of the global context at the time––making the case that while most Americans might not need cryptocurrencies, the world does.
But now, it seems that Americans don’t have to look quite as far as he originally had in mind.
As Norbert Michel, Walter Olson, and I wrote when the news first broke, the main intent of Canadian Prime Minister Justin Trudeau’s decision to invoke the Emergencies Act was to freeze the bank accounts of those involved in the trucker protests without so much as a court order.
With that one call, Trudeau made the case for cryptocurrency abundantly clear: cryptocurrencies offer a way to protect one’s wealth from authoritarian governments and that’s a consideration that needs to be made even in one of the freest countries in the world.
Two Words: Censorship Resistance
Censorship resistance is one of the most important features cryptocurrencies offer for those trapped in authoritarian regimes. Where governments can control, or censor, the public through financial institutions (i.e., a freeze on bank accounts, asset forfeiture, etc.), cryptocurrencies offer a new opportunity to protect one’s wealth.
One problem with traditional financial institutions is that they hinge on the use of third‐party intermediaries, which also create a “choke point” that governments can take advantage of. For example, through the lens of the third‐party doctrine, the U.S. government views ownership of a bank account to be a surrendering of one’s Fourth Amendment right to privacy when it comes to financial records.
In contrast, as noted previously, the absence of a third‐party intermediary in decentralized cryptocurrencies means that there is no one for the government to pressure to release a person’s information except for the direct owner of that information. If the U.S. government were to take action against such a direct owner, it would first need to make its case and secure a court order.
A Critical Caveat: Keep Your Coins
Yet critically, cryptocurrencies are not completely immune from the third‐party doctrine. In fact, because of that reality, cryptocurrency users will often mention lines like, “Not your keys, not your coins.” In short, the phrase is simply calling attention to the importance of self‐hosted wallets. If you choose to trust a third party to host your wallet, then you are not gaining all of the protections that cryptocurrencies can offer.
The advent of Bitcoin, and other cryptocurrencies like it, introduced the opportunity to remove intermediaries and electronically self‐host one’s money. In other words, it offered the opportunity to “be your own bank.” But that opportunity has not stopped people from using an intermediary. Kraken, Coinbase, FTX, and many others have made it easier than ever to use cryptocurrencies, but this benefit comes at a price––like traditional banks, they too are subject to the third‐party doctrine.
That reality was put on full display when Jesse Powell, the CEO of Kraken, responded to the situation in Canada by candidly explaining that government orders to freeze accounts is something that has happened and likely will happen again where people use intermediaries. Powell said, “If you’re worried about it, don’t keep your funds with any centralized/regulated custodian. We cannot protect you. Get your coins/cash out and only trade [peer‐to‐peer].”
And as if the situation could not have been made worse in Canada, the Ontario Securities Commission actually reported Powell’s tweet (as well as one from the CEO of Coinbase, Brian Armstrong) to law enforcement on the grounds that he was giving instruction on how to avoid the restrictions.
Reactions like that of the Ontario Securities Commission are clear evidence of why it’s important for the United States to get ahead by establishing protections for self‐hosted wallets. One such example is the protection outlined in Representative Warren Davidson’s (R‑OH) Keep Your Coins Act where, if enacted, federal agencies would be prohibited from restricting the use of cryptocurrencies in self‐hosted wallets. Otherwise, it’s possible that regulators could impose impossible compliance standards and block the use of self‐hosted wallets.
Central Bank Digital Currencies in Context
Trudeau’s decision, however, did not just make the case for cryptocurrencies. It also made the case against central bank digital currencies, or CBDCs.
If Canada had a CBDC available––especially on the individual or retail level––the process of freezing accounts would have been expedited and likely on a much grander scale. Again and again, proponents of CBDCs have spoken highly of the programming and surveillance possibilities for a CBDC. This degree of finite control would have directly linked the Canadian government to the protestors’ financial resources. And it will do the same in the United States if a CBDC is adopted.
In fact, in a prescient moment during an event at the Competitive Enterprise Institute on February 8, Representative Tom Emmer (R‑MN) warned that there would be little to stop “digital authoritarianism” from being used to curb protests in the states. He explained that such a risk was why he believed the Federal Reserve should be banned from issuing a CBDC at the retail level.