Bitcoin has been in the news recently. Programmer Stefan Thomas was a prospective multi-millionaire, having 7,002 bitcoins (worth at the time approximately US$240 million) stored on a digital wallet. But after forgetting his password and losing access to his coins, Thomas was quoted by media as saying that he had made peace with the loss, noting: “It was actually a really big milestone in my life where, like, I sort of realized how I was going to define my self-worth going forward. It wasn’t going to be about how much money I have in my bank account.” (Business Insider India)
Recently, European Central Bank director Christine Lagarde called for increased regulation of bitcoin, describing the cryptocurrency as “a highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money laundering activity.” (Reuters) This high-level call for regulation comes as no surprise, since speculators have grown increasingly bullish about bitcoin even as it grows more volatile, its value regularly fluctuating by up to 10 per cent each day. Business Insider noted: “After hitting its record-high of more than US$41,000 on 8 January it fell to close to US$30,000 a few days later before rising again.” A record US$3.7 billion bitcoin options expired on 29 January. The other concern is that, from the perspective of national governments, bitcoin and the broader cryptocurrency sector is “mostly lightly overseen or unregulated,” even with the emergence of global standards on things like anti-money laundering. (Reuters)
Bitcoin is perhaps the best-known of a number of cryptocurrencies, defined by PricewaterhouseCoopers as a “medium of exchange, such as the US dollar, but is digital and uses encryption techniques to control the creation of monetary units and to verify the transfer of funds.” (PwC) Cryptocurrencies function through a technology called blockchain, which is “a decentralized ledger of all transactions across a peer-to-peer network. Using this technology, participants can confirm transactions without a need for a central clearing authority. Potential applications can include fund transfers, settling trades, voting, and many other issues.” (PwC) Central banks around the world warn investors that cryptocurrencies are not issued or guaranteed by the state. According to a 2018 report by the Law Library of Congress, no legal recourse is available to investors in the event of loss, and many countries have noted the opportunities that cryptocurrencies create for illegal activities, such as money laundering and terrorism. (The Law Library of Congress)
At the heart of the debate between cryptocurrency investors and advocates of more traditional models with state oversight is the question: what is a healthy balance between an increasingly popular private means of investment and management of the risks to economic volatility and even national security? How should it be taxed (Israel categorizes cryptocurrencies as assets, while Argentina counts them as being subject to income tax)? Should it be accepted as payment? How can an international standard for cryptocurrencies emerge when regulation is so diverse among different countries? The Law Library of Congress notes: “Not all countries see the advent of blockchain technology and cryptocurrencies as a threat, albeit for different reasons. Some of the jurisdiction [sic] surveyed for this report, while not recognizing cryptocurrencies as legal tender, see a potential in the technology behind it and are developing a cryptocurrency-friendly regulatory regime as a means to attract investment in technology companies that excel in this sector. In this class are countries like Spain, Belarus, the Cayman Islands, and Luxemburg. Some jurisdictions are seeking to go even further and develop their own system of cryptocurrencies.” (The Law Library of Congress)
The attractiveness of cryptocurrencies to investors is not going away. Its allure is based on the idea of circumventing national financial authorities, so there is little incentive (at least to private investors) in the appeal to the benefits of oversight. The potential dangers of cryptocurrencies, however, are clear, and a hyper-libertarian approach to regulation is unacceptable to most national governments. Therefore, a Middle Way (however that way is defined) is the inevitable and most reasonable compromise.
Rather than a wholehearted embrace or rejection (veering between extremes), governments could approach cryptocurrencies in a similar way to how historians study boom-bust cycles, including the global financial crisis of 2007–8. The instruments of investing that led to the crash and global recession were considered perfectly orthodox: property, debt in the form of sub-prime loans, bonds, and bundled assets. But in the end, creations like collateralized debt obligations became so toxic and unwieldy—in some cases, banks were betting against their own packages—that the entire house of cards fell apart. As that period demonstrated, unbridled greed can unleash chain reactions in financial markets, often leading to economic turmoil.
The Buddha taught that if politics and economics are based on our core mental afflictions—in this case, greed—then those systems will inevitably and obviously be characterized by violence, deceit, and injustice. As long as unconstrained avarice and a winner-takes-all attitude dominates the context of financial markets, then cryptocurrencies will lean toward some rather destructive possibilities. However, even orthodox ways of investing are not far behind in their potential to cause financial crises. Furthermore, we are already immersed in an intensely capitalistic vision of being, where everything is commodified as a marketable and “investment-worthy” product, including our personal lives and data. Cryptocurrencies are not so much an aberration but more a logical product of a society that wants as many ways to get rich, with as few constraints, as possible.
In the Sutta Pitaka’s Digha Nikaya (11:85-86), the Buddha said: “Householders, there are five benefits that accrue to a man who performs meritorious acts and practices morality. The first benefit is that he acquires his wealth by honest means.” Given the complexity of reaching a consensus on the value and nature of cryptocurrencies, it is up to governments to ensure basic risks to national security—such as money laundering or terrorism—posed by unfettered use of cryptocurrencies are addressed. That might be the easy part. The longer-term challenge is how cryptocurrencies can become a part of honest and ethical investing.
Walshe, Maurice. 1995. The Long Discourses of the Buddha: A Translation of the Digha Nikaya. Boston, MA: Wisdom Publications.