China, the Convenient Foil

Is bitcoin a Chinese plot to destroy America?

To Peter Thiel, it might be. Here’s what the tech entrepreneur said yesterday at an event hosted by the Richard Nixon Foundation (as reported by CoinDesk’s Colin Harper).

“Even though I’m a pro-crypto, pro-bitcoin maximalist person, I do wonder whether if, at this point, bitcoin should also be thought of in part as a Chinese financial weapon against the U.S. ... It threatens fiat money, but it especially threatens the dollar.”

This makes perfect sense, and no sense, simultaneously.

In the no-sense category: China doesn’t control bitcoin and would find it hard to do so, because, you know, decentralization. Although something like three-quarters of the world’s mining is in China, and theoretically Beijing could take that over, other miners could easily set up elsewhere. Bitcoin is adaptable and, so far, has remained impervious to government intervention.

If China, somehow, did manage to control bitcoin, that would probably limit its impact as a global currency anyway. As Ripple’s Brad Garlinghouse said in 2018: “How do we know that China won’t intervene [in controlling bitcoin]? How many countries want to use a Chinese-controlled currency? It’s just not going to happen.”

But Thiel is right in a less literal sense.

Bitcoin doesn’t look like it's replacing the dollar as a global reserve currency anytime soon. It’s becoming too valuable as a store of value to be a means of exchange. The asset has millions of holders but, as yet, few spenders.

But it has opened the door on monetary technology, with big geopolitical consequences. Because of bitcoin, we think differently about how to transfer value. Growing numbers of people understand that you don’t need a bank or middleman to do that.

China is adapting this insight to its very state-oriented view of the world. Its plans for a digital yuan allied to an international blockchain services network could obviate the need for companies and individuals to use any form of reserve currency and allow trade to go around the U.S. banking system.

Going forward, we’re likely to hear a lot more comments like Thiel’s, even if they’re a bit confused. (There’s something strange about a bitcoiner worrying about U.S. state power, but nevermind.) China is a convenient foil, as we saw in 2019 when Facebook’s David Marcus conjured up the specter of Chinese monetary innovation to make the case for libra (since renamed and reconfigured as diem).

“The future in five years, if we don’t have a good answer, is basically China re-wiring [the world] with a digital renminbi running on their controlled blockchain,” Marcus told the U.S. Congress. The U.S. could lose the right to make sanctions on other countries and could find itself on the wrong end of them, too, he said.

As China rolls out its blockchain weapons, differences in monetary approach will become starker – privacy versus surveillance, state-run versus private enterprise, “clean” bitcoin versus “dirty” bitcoin – and we’ll see new forms of conflict between long-time rivals. The rest of us will have to choose which side we’re on.