The Evolution Of Crypto Continues – Seeking Alpha

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Almost daily now we are seeing how the "traditional" central authority system is responding to the spread of the "decentralized" crypto-system and observing how the evolution of money is taking place.

The creation and production of cryptoassets have reached epic proportions and the growth and spread of the different forms they take have just been amazing.

The thing is, the cryptoassets, especially Bitcoin (BTC-USD), were created in order to take money and the creation of money away from central authority systems.

Satoshi Nakamoto has written,

The real problem with conventional currencies is all the trust that's required to make it work.

The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.

So, Mr. Nakamoto created Bitcoin.

And Mr. Nakamoto created Bitcoin to exist without any reliance on a central authority.

In doing this, Mr. Nakamoto "bifurcated" the existing monetary system and sent it on its way to generate the new frontier of money.

But, as has been seen many times in the past, using new technologies to disrupt the old structure so as to build something different, something better, and something cheaper does not always end up where one thinks it might.

The creation of Bitcoin has disrupted the monetary system and has caused many other people to search for improvements, to create new alternatives, and to open up even new avenues to the new possibilities that exist.

And, as with any complex system facing a new disruption, the chaotic path that is followed is unchartable. And the disrupted system responds and generates its own pathway to the future structure.

That is exactly what is going on.

The new system must be tested for its security.

Bitcoin was supposed to be secure.

But, as we have just seen, Bitcoin has been subject to a $3.6 billion theft.

Two individuals have how now been caught attempting to launder the 119,754 Bitcoin stolen in the 2015 hack of Bitfinex, a cryptocurrency exchange based in Hong Kong.

This case represents, to the U.S. Justice Department, the largest financial seizure that the department has ever been involved in.

This case is not only a large one, but it is also quite complex, and the Justice Department is learning a lot about the "new" world of information technology and what it means to not only the workings of money but also to even the definition of money.

Next, we take a little step over and we find that the Securities and Exchange Commission has achieved a settlement of $100 million related to an enforcement action on cryptocurrency lending connected with BlockFi.

BlockFi had been offering interest-bearing accounts without registering them as securities.

Three notes on this result.

First, the Securities and Exchange Commission has been battling with the Commodities Futures Trading Commission about the definition of securities and commodities and which agency should be regulating what.

The Commodities Futures Trading Commission has gotten permission to regulate many cryptoassets because they are being defined as "commodities" and, here, in this case, the Securities and Exchange Commission has gotten permission to work with interest-bearing accounts because they are more closely connected with "securities."

So the "traditional" central authorities are working out how the "new" assets are to be handled.

Second, the SEC's chairman Gary Gensler is moving strongly into the crypto space, because he sees a real need for the government to do something in this area, something it has taken too long, in Gensler's eyes, to take on.

Third, BlockFi is intentionally pushing issues like this so as to force the regulators to act and define what the future is going to look like.

Zac Prince, BlockFi's chief executive officer, stated after the decision,

Today's milestone is yet another example of our pioneering efforts in securing regulatory clarity for the broader industry and our clients, just as we did for our first product--the crypto-backed loan.

So, some of the firms in this area realize that they are going to have to give into the "central regulatory authority" and, therefore, are trying to work together with the authority rather than fight it.

This is a big step to the new regulatory and industry structure that is now in the process of emerging into the next era.

The last subject I would like to bring up today is about the global effects of the rise of cryptoassets.

One of the "givens" of the evolving information technology is the fact that information grows and spreads. You might be able to slow the spread from time to time, but it always seems to get back in gear and begin to spread again.

The economist Eswar Prasad writes,

The emergence of digital currencies, both private and official, is shaking up domestic and international finance.

Consider international payments, which are inherently complicated. They involve multiple currencies, payment systems operating on diverse protocols and institutions governed by varying regulations.

So, cross-border payments tend to be slow, expensive, and difficult to track in real time.

New technologies spawned by the cryptocurrency revolution are making cheaper and practically instantaneous payment and settlement of transactions feasible.

This will alleviate payment-related frictions in international trade.

Economic migrants sending remittances" back home will also benefit.

Changes are afoot in foreign exchange markets, too.

The proliferation of digital currencies and new technologies is bringing on greater cross-border coordination of regulation and supervision.

The technologies are binding the world's economies and financial markets close and closer together.

In fact, Mr. Prasad believes that the global world may actually accelerate the move to bring on the regulations and organizations that are needed to move into this new world smoothly.

The conclusion I draw from this discussion is that the digital world of finance is spreading throughout the world and will, in one way or another, bring on the new world of money and finance we are waiting for.

Information is made up of zeros and ones. Information is going to spread. More than almost anything else, money and finance are going to become global.

But the integration of money and finance is also going to become global, and for this to be accomplished, the spread of digital money and finance is going to have to draw on international organizations and international regulation.

This is one area where the world needs to work together and grow together.

Money and finance, because of this, should also draw the world together.

The future is going to have to be some of the past and some of the future. What emerges from the "chaos" of the transition is unknown and will be for some time. But it will be some combination.

Bitcoin, as we know it, may become less of an issue in this future, but I think the picture is clear that the future we are heading toward could not have ended up the way it will end up without the pathway plowed by Bitcoin and other cryptoassets.

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The Evolution Of Crypto Continues - Seeking Alpha