Skip to main content

Chess Move 1–US

In mid January 2022, President Biden said:

"If [Russia] invades, they’re going to pay; their banks will not be able to deal in dollars."

Chess Move 2–Russia

Shortly thereafter, knowing that crypto could keep Russia and its banks connected to the rest of the world even if the US cut off their access to the dollar transfer system, Putin started making favorable comments about Russia’s natural advantages in mining bitcoin and instructed agencies within his government to collaborate develop a coherent crypto regulatory policy.

In short, Putin now wants to foster Russia’s adoption of crypto because he knows that a Russia powered by crypto is more self-sovereign and less beholden to foreign influences. Cutting off Russian banks from the international dollar transfer system would have far less impact on Russia if, via crypto, its banks and businesses can still access international capital and otherwise transact business internationally.

Chess Move 3–US

Shortly after Putin’s comments concerning bitcoin, the Biden Administration said that it will soon be ordering US government agencies to likewise collaborate to develop a coherent national crypto regulatory policy as a matter of “national security”. 

Chess Move 4–Russia

On February 9th, 2022, Russia's government and Central Bank surprised most of the world by announcing that Russia would soon formally recognize Bitcoin and crypto assets as “currency analogs”. I expect that Russia will eventually make these currency analogs legal tender within its borders since the more dependent the Russian economy becomes on crypto the less dependent it becomes on any foreign power, especially the US.

Scroll to Continue

Recommended for You

Chess Move 5–US

Shortly thereafter President Biden released the previously promised Executive Order concerning cryptocurrencies.  Contrary to those who predicted he would try to kill or maim the technology, the Order as actually very favorable.  It’s tone made clear that the US must embrace bitcoin and blockchains and foster their innovations in order to remain competitive with other nation states who do. With the exception of a few clueless people like Elizabeth Warren, both sides of the aisle now recognize that the US cannot afford to permit Russia or any other nation state to gain a significant first mover advantage in the blockchain space.  The race is one.  

Bitcoin’s Perfect Game Theory

This is the game theory of bitcoin that I’ve been talking about, and it's now playing out right before our eyes. Everyone (every country, every state, every city, every central bank, every commercial bank, every business, every NGO and every person) will eventually be forced to adopt crypto in general and likely bitcoin in particular, because anyone not doing so will be severely disadvantaged versus their competitors or enemies. 

In this regard the game theory of crypto is much like that of encryption in general. Governments notoriously hate encryption technology because it limits their ability to seize and to spy, and so limits their power. Some governments have tried to ban encryption for their citizens, and even the US has contemplated passing laws that would force encryption software developers to include “back doors”.

But all such attempts have generally gone nowhere because encryption also gives nation states and their economies very important strategic advantages and makes them more robust against outside influence.  All else being reasonably equal, no country or economy eschewing encryption, or requiring back doors that its enemies too can exploit, can compete with one that fully hardens its economy with robust encryption. This fact has ensured encryption’s widespread adoption all across the world, and very quickly. The same game theory considerations will soon ensure crypto’s widespread adoption.

Conclusion

As I have said until I’m blue in the face, when it’s all said and done, governments won’t ban crypto, nor will they seek to tax it to death. Rather they will eventually look for ways to encourage and subsidize its adoption within their borders. Its strategic significance is just that great.

The most significant factor preventing widespread adoption by businesses is a lack of regulatory clarity. Governments know this, and both the US and Russia have now committed to providing that regulatory certainty/clarity soon. Every other country will follow suit.

The crypto arms race is on. It will be the big thing to watch over the next decade. The countries that win this race will be the new powers in the coming crypto world.