Zuck, Xi and the Ever Evolving Narratives of Crypto
A few years ago, Balaji S. Srinivasan (former CTO of Coinbase and general partner at Andreessen Horowitz), shared on Twitter his particular vision of the relationship between the international political powers and the digital world. Popularized under the label “land vs. cloud”, Balaji’s original thread announced a profound paradigm shift. The traditional battlefield of modern politics (the right-left axis), was being replaced by a symbolic struggle between the bureaucratic structures of the nation-states (characterized by an anti-immigration discourse and a renewed economic protectionism), and the technologists (cosmopolitans that swell the ranks of a growing number of international tech companies and several nascent crypto networks).
Soon after being formulated, Balaji’s new paradigm was quickly assimilated as an integral part of the broader crypto culture and incorporated into analysis of the economic and political factors that still hinder the adoption of cryptocurrencies as a viable alternative to the legacy international financial system. Some may argue that “land vs. cloud” is nothing more than a simple meme. But sometimes, memes can be impressively prescient.
If Balaji’s thread embodies, albeit imperfectly, the ethos of a heterogeneous community of entrepreneurs, investors and users dedicated to the crypto-evangelization of the world — with the somewhat declared goal of implementing a freer monetary and financial system -, Mark Zuckerberg’s last October appearance before the Financial Services Committee of the US House of Representatives symbolizes the reverse, the dark side of what this incipient industry might become one day. A turning point, a narrative change with the potential to weaken the ideological consensus reached thus far within a relatively small community, at a time when blockchain technology prepares to make the leap to mainstream adoption.
After a cold reception by the same congressional committee in July 2019, Zuckerberg decided to change his pitch in this second assault, hoping to soften the strong reluctance regarding Libra previously expressed by both the representatives of the Democratic and Republican parties . He presented the project as a financial instrument that in no way sought to erode the petrodollar hegemony as an international monetary reserve — on the contrary, it could even help strengthen its reach and influence. The original design of Libra — based on a basket of international currencies and assets — would now be replaced by a new one in which the official currency of the United States would serve as the main type of collateral. The projected cryptocurrency, designed to “expand the financial leadership of America”, would rely on a permissioned network in order to facilitate government control and allow, when necessary, censorship.
But what are the implications of this narrative shift from Balaji’s “Land vs. Cloud” to Zuck’s Libra vision?
The arguments utilized to market Libra to the American Congress threaten to bring back old ghosts from the past. Throughout his appearance, Zuckerberg explicitly presented his project as a reaction to the Chinese attempts to launch a similar cryptocurrency -distributed by a consortium of companies owned by the communist state. If during the Cold War the world witnessed a space and arms race between the USSR and the US, Zuck’s statement before the Financial Services Committee provided hints of a future in which Sino-American trade frictions, far from decreasing, will grow virulently till the point of becoming a battle for global financial and monetary supremacy — with all the geopolitical implications that such a conflict entails.
Despite the dramatic effect of this unexpected patriotic shift of the Libra project, the Committee members did not soften their positions. Whether due to ignorance or genuine antipathy, the reception of Zuckerberg’s proposals swang between a deep skepticism and an open hostility. Proof of this was the intervention of the representative of Florida, Bill Posey — a champion of the anti-vaccine movement -, which completely ignoring the supposed geopolitical advantages that Libra could provide to the US, limited himself to express his concerns about the role of Facebook as a supporter of the generalized vaccination of the population.
However, while the libra hearing was relatively uneventful, a closely related event that took place 24 hours later on the other side of the world caused a big shock in the crypto space. In an exercise of perfect synchrony, as if it were an explicit response to the arguments put forward by Zuckerberg, Xi Jinping declared blockchain a key element for the technological and economic development of China. A strategic asset of such importance, that the government shall devote all the necessary resources and efforts to position itself as a world leader in the sector. It’s not difficult to imagine what came next: the value of the main cryptocurrencies skyrocketed, and so happened to the prices of all the Chinese companies that had the slightest relationship with blockchain technology.
Soon after, the Chinese media started broadcasting the details of this new national blockchain policy, clarifying that it exclusively aimed to accelerate the development of potential industrial applications — including a rumored financial version of the project One Belt, One Road -, enhance the connectivity between “social and financial regulatory bodies” and serve as the backbone of the future digital yuan -completely controlled by the People’s Bank of China. In short, a new version of the mantra “Blockchain, not Bitcoin”, reaffirming the rejection of all forms of speculation that involved cryptocurrencies.
Regardless of that, what is truly exceptional of Xi’s statement is that it is an explicit recognition that blockchain technology is here to stay. The enactment of a national cryptography law during the same week gave another boost to this new stance. The fact that officials of the People’s Republic of China Government publicly dismissed the benefits of open networks such as Bitcoin or Ethereum is not relevant. Lots of big corporations such as Deloitte or JPMorgan are already testing blockchain systems that do not rely on cryptocurrencies — just like in the pre-Internet era, they would run their own Intranets. But many of them have revealed advanced plans to operate with the Ethereum public mainnet — instead of using a permissioned version of Ethereum such as Quorum — as soon as the scalability problems are solved and the Visa throughput benchmark is reached.
Therefore, the announcement of Xi should be understood as part of a strategic approach that will be implemented in phases and, in all likelihood, will evolve over time. Now it’s time for the Chinese government to set an official position and start cleaning up the market, removing all those elements that are considered harmful or constitute an obstacle to the power of the state. In order to gain control of key infrastructures (such as mining companies and exchanges) the government will force companies to set up Comunist Party Committees — as we’ve seen with Huobi, while other companies like Binance have moved overseas to remain neutral actors. The popularization of blockchain technology in a country with 1400 million inhabitants will allow the chinese government to become a standard-setter, especially in relation to still emergent fields (such as identity). Despite all the efforts of the chinese regime to make clear that they are just embracing a permissioned version of the technology and keep rejecting all speculative activities regarding to crypto, they are well aware the future of blockchain lies in the public networks. Hence why becoming a standard-setter is so important for them: they can’t prevent the future of web 3.0 to rely on public networks, but at least they will try to shape it, in order to better adapt it to its own interests.
It’s worth noting that, although numerous indicators point to a new technological race between 2 world superpowers, it’s still difficult to predict the role that both Btc and Eth — the native assets of the two main public blockchain platforms — will play in it. The former, limited by the technology of its underlying platform to serve as a currency/store of value, will probably be considered by the Chinese government a potential competitor of the digital yuan -the future reserve currency of all the areas under Chinese influence. In the same vein, I wouldn’t expect the US government to gently renounce to the privileges associated with the global reserve status of the petrodollar -everyone remembers the tweet of Donald Trump last july regarding cryptocurrencies- in favour of what many consider a form of digital gold.
The case of Eth is different, because we can argue that its moneyness isn’t programmatic, but the result of utility -besides being a reward mechanism for those securing the Ethereum network and the only accepted form of payment for transaction fees, it also has become the main type of collateral of a parallel financial system built upon its smart contract technology. The fact that Eth wasn’t initially conceived as money or as a store of value by the founders of the platform — despite “Eth is money” having become the dominant narrative among the members of the Ethereum community nowadays — seems, in retrospect, really meaningful. It’s highly likely that as the epitome of the useful smart contract platform -and being fueled by a “non-explicitly monetary” asset-, Ethereum will have the opportunity to find a better accommodation in a future that, undoubtedly, will be modeled by the likes of Zuck and Xi.
