The US has shown they can effectively enforce AML/KYC requirements across the vast majority of exchanges and businesses. Any exchange the average person tries to use to buy crypto will request your ID to do any meaningful transaction.
Granted, there are exchanges you can use a VPN and access without KYC, and while it is difficult to manage billions of dollars in the dark, it's certainly possible. But they can regulate the vast majority that any regular user will find, and have shown they're willing to OFAC others.
No one needs a pile of paperwork to prove to the gov’t who they are to spend or get paid cash.
No one needs to be on a list, and have their every transaction double checked to make sure it’s with a validated counterparty to pay in or get paid cash.
Etc.
At that point, it’s literally cheaper, easier, and safer to just use a normal bank.
Which is I guess the point.
It's not about pleading to these entities that they are "doing it wrong". They know this, because this is their way to control it / oppose "doing it right".
To be clear there's different types of regulations, some we/I personally agree with more than others.
Personally, I agree with you that kyc/aml laws are over the top. I think privacy and money laundering are two things people often conflate, and that privacy is something we should want. (Side tangent - the majority of crypto was not really designed for anonymity or privacy, although that's a whole different topic). People claiming "crypto is just for money laundering" as a reason it's bad should be applying the same logic to physical cash.
What I'm particularly interested in is regulations around the big exchanges to prevent them from putting all of their clients money somewhere stupid, losing it all, and go illiquid.
> At that point, it’s literally cheaper, easier, and safer to just use a normal bank.
I mean yes, an FDIC insured bank is absolutely safer than an unregulated crypto exchange. This is the exact reason why the phrase "not your keys, not your coins" exists, and why everyone says you shouldn't keep your keys on an exchange. Done properly, a crypto wallet should be safer than a bank provided you can assure physical safety and redundancy of your keys.
Part of the problem IMO is that crypto became this "get rich quick" thing - with "exchanges" advertising double digit returns, people using NFTs for art for some reason, etc. I think the technology has uses, but this "get rich quick" bs has been a massive hinderance. I really think this "the point of crypto is to make money" mentality is missing the actual use of it.
tl;dr - a properly used crypto wallet should be safer then a FDIC bank, an FDIC bank is faaar safer then a crypto exchange, there could be more regulation on just the exchanges, and aml/kyc laws are a seperate type of regulation - I was just using these as an example of the US government successfully regulating exchanges.
It’s a lot easier to make a lot of money if you steal it, or play games. Most of those are already illegal, no regulators required.
Regulation can help of course, if someone actually comes by and checks that nothing illegal going on. but the type of regulation that comes along with ‘have a reliable audit of what you’ve got every night, or else’ also tends to include ‘and make sure you don’t do business with drug lords and human traffickers’, at least in the West.
God help you if you try to fight that last one too.
Gold depositories have the same issues as crypto exchanges have typically had - it’s almost inevitable that someone absconds with the actual gold without telling anyone, or ‘prints’ extra without backing assets, etc. and until someone does an audit or everyone tries to withdraw their gold/tokens/whatever, no one knows.
It also enables a lot of other scams.
[https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/f...]
For anyone reading, educate yourself so you don’t get defrauded.
Not all depositories are a bad idea in all situations - but be cautious.
(Also, historical footnote - the last credible audit of the gold at Fort Knox was in 1974, hah - https://www.usmint.gov/learn/history/historical-documents/in...)
So there is always a middleman, unless you’re on your own chain. But it’s distributed, no one can reliably pick who is going to be the miner (or always be the miner) because of the POW algorithm, and everyone can trust the outcome because of the way everything is structured. There are very strong incentives for everyone to try to mine, for instance, and the more mining power there is, the more difficult it is for anyone to have a controlling interest or monopoly on mining, barring special economies of scale in mining hardware, anyway. (Which do exist, but not enough to make it doable to get a monopoly right now)
Worst case, the miners can ignore your particular transaction indefinitely, but the counterparty can see that too, and it would require active collusion from a very large percentage of miners to even attempt that.
So it’s not a middleman like a bank or a payment processor. Rather a bulk processor who moves a bunch of opaque chunks somewhere for money without any particular regard for who or what as long as they get paid for it.
And since it’s global, that third party could even be some foreign gov’t or entrepreneurial individual.
And which cops have a nasty tendency to seize on sight in the US if seen in any significant quantity (outside of an armored car) because ‘proceeds of crime’?
And pretty much every drug transaction, illegal sexual transaction, whatever is done in cash? To the point most major crime shows and drama shows have scenes involving some massive pile or duffel bags or whatever of cash as a plot point?
Cash on the barrel head is the textbook definition of ‘difficult to regulate’.
Also, most people buying person to person used cars and doing yard sale transactions use it too, of course.
It’s not a requirement that Cash transactions involve a crime at all. Same with crypto.
If your transaction is illegal though, using Venmo seems pretty dumb.
But then there’s China, right?[0] And arguably India?[1]
I agree with your larger point, but I don’t think it’s “western” per se to dream of the surveillance state knowing our every spend.
[0]: https://www.nytimes.com/2020/10/27/technology/alipay-china.h...
[1]: https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetis...
Thanks for the links!
So, no, cash isn't entirely separated from financial institutions.
Cash transactions do not, so spending, receiving, and if one is crazy storage can be done without institutions.
That hypothetical $10k transaction for instance only sets alarm bells off if it’s an abnormal transaction for an individual account.
Someone doing a cash business is going to do stuff like that so much, it’s a drop in the bucket and no one cares. Coin shops, check cashing places, certain types of convenience stores and restaurants, etc.
If they manage the cash themselves instead of a cash drop, such as if they are a dispensary and are unbanked, a given dollar bill can circulate a very long time before touching a bank, depending on which parts of the economy it touches.
The reality is it isn’t super hard to launder funds apparently, so it ends up back in a bank somewhere soon, but with the intermediary transactions hidden.
Do you mean bank transfer?
Let’s say I buy a legal widget for $10K and I pay cash and I don’t plan to treat it as a business expense. On my side, I’m done, and any alarm that might be invoked is the problem of the seller, and probably dependent on their compliance with weakly enforced regulations.
For some classes of widget I might want a receipt, but definitely not for all. You can easily spend that much on a birthday dinner with your friends, if that’s your thing.
I don’t think anybody is arguing that cash is “entirely separated from financial institutions” but — even above $10K — it allows for the possibility (not the guarantee) of transaction privacy.
Devon Zuegel talks with EconTalk host Russ Roberts about the crazy world of money and finance in Argentina. When inflation is often high and unpredictable, people look for unusual ways to hold their savings. And when banks are unreliable because of public policy, people look for unusual ways to keep their savings safe and to make financial transactions. Welcome to Argentina, where Zuegel finds surprising applications of cryptocurrency for solving problems.
https://www.econtalk.org/devon-zuegel-on-inflation-argentina...
Practical value add? Less clear. On-chain comes with "contract risk", off-chain is more or less unregulated and comes with these FTX-like collapse risks.
However, whether this freedom to tinker and invent new primitives is worth all the extra risk from people trying to "invest" in this stuff, way less clear. Especially when the freedom is most often used to recreate traditional flavors of financial fraud dressed up as new technology.
There needs to be some conceptual separation between the actual on-chain technology (used by a very smaller minority of people with some kind of financial stake in crypto) vs. buying tokens/coins off-chain. At the very least marketing and promotion of buying made-up crypto tokens should be illegal and probably every off-chain entity related to crypto should be heavily regulated to avoid using the cover of "new technology" to perpetuate scams.
Or do you have to fill out a slip and get audited for every transaction?
Bitcoin was about digital money, out of the reach of central banks as a response to the 2008's financial crisis.
Modern crypto is about trying to convince others your altcoin has some intrinsic value by selling rumours, partnerships, governance or some other vaporous dream, so it can be used for gambling.
The problem are central exchanges creating monstrous speculation instruments and of course gambling with user funds on top of it by lack of regulation.
Literally, the first sentence in the Bitcoin whitepaper (which arguably kicked off 'crypto' as a thing) is "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution".
[https://bitcoin.org/bitcoin.pdf]
I mean, seriously?