Will Governments Be Held to Ransom? — The Crypto World

My friends in the crypto world (yes, I do still have some…I think) truly and passionately believe in a decentralised financial system.

Contrary to what people might think, I share their ideal.

Central bankers have proven — beyond all reasonable doubt — their ineptness and ignorance.

These pompous bureaucrats are easy targets to loathe…especially by those who have either lost money from bubbles past or are being punished for having been silly enough to accrue some savings.

The sooner we’re rid of central bankers, the better off the financial system would be. They’ve had their chance to prove their worth and have (literally and figuratively) blown it.

But no matter how much we may want that, it’s not going to happen. Central bankers are the hand puppets of the political class.

The last independent central banker was Paul Volker at the Fed…and look what happened to him.

In the early 1980s, Volker successfully defeated inflation by hiking interest rates…triggering two recessions in quick succession.

When his term came up for renewal, President Reagan replaced him with Greenspan.

Ever since then, central banks have appeased their political masters by actively pursuing a GDP growth policy based on the twin pillars of immigration and debt.

Achieving this objective required a centralised financial system. One controlled by government and their central banker lackies.

Then along comes Bitcoin [BTC] and blockchain. A novelty at first, but after a decade of operation, is now championed as a disruptor to the status quo.

In many quarters it’s believed to be a genuine alternative (threat) to the existing financial system.

Maybe.

But to date, legislators have not really flexed their muscles. Cryptos have had a rails run.

There has been no real pushback from the incumbents. Hopes have been raised based on what’s been. But that might not be what’s to come.

Governments are yet to unite and get serious about quashing the threat to their money printing monopoly.

When that happens, I suspect the hope for the ideal of DeFi will be as likely as lasting peace in the Middle East.

The few spoiling it for the many

One of the major problems with the decentralised movement is the few are spoiling it for the many.

In the 23 June 2021 issue of The Rum Rebellion, I wrote:

According to The New Republic on 3 June 2021 (emphasis added)…

We’ve had a decade-plus of cryptocurrencies, and their main innovations appear to be new forms of wasting natural resources and extorting innocent people for money.

That pretty much sums it up in a nutshell.

The article did acknowledge…

“Perhaps, one day, the promised decentralized financial system — one that’s supposed to be liberated from the surveilling eye of the state and the harsh yoke of tyrannical central banks — will arrive.

“Perhaps it will even bring about shared prosperity and not just reproduce, or exaggerate, the existing inequities of our highly financialized, turbo-capitalist economy. But that day still seems far off.”

Until that day does arrive, the problems created by bitcoin outweigh any promised solution.

To quote from the article (emphasis added)…

“With conventional banking off-limits, ‘the ransomware problem is a Bitcoin problem,’ wrote Nicholas Weaver, who researches computer security at the International Computer Science Institute.”

How big is the ransomware problem?

Headline from the WSJ on 11 May 2021:


The Wall Street Journal

Source: WSJ

[Click to open in a new window]

As reported, the problem is escalating…

“Ransomware has passed from a minor inconvenience to a widespread threat against major infrastructure, both in the U.S. and around the world. Last year, 2,500 cases of ransomware were reported to the FBI, with $350 million in cryptocurrencies paid out as ransoms.”

Some governments — depending on which side of the argument you are on — are either, trying to tackle this problem before it gets out of hand OR using this as an excuse to demonise cryptos to promote the use of their own digital currency.

Bitcoin’s latest fall was a result of China flexing its regulatory muscle. As reported by News.com.au (emphasis added):

“A key CCP [Chinese Communist Party] financial regulatory body issued a new ruling on Friday [18 June 2021]. It says cryptocurrencies are ‘seriously infringing on the safety of people’s property and disrupting the normal economic and financial order’.”

It can be argued that US$350 million is a drop in the ocean of corruption.

True.

But it can be equally argued, that unless this problem is addressed, what we’re seeing could be the thin edge of a very wide wedge.

Tech and crypto commentator, Stephen Diehl recently wrote…

“Imagine…a time in business in which every company simply just allocates a portion of its earnings upfront every quarter and pre-pays off large ransomware groups in advance. It’s just a universal cost of doing business and one that is fully sanctioned by the government because we’ve all just given up trying to prevent it and it’s more efficient just to pay [in Bitcoin] the protection racket.”

Diehl also asks us to imagine what it would be like if entire cities randomly have their metro systems, water, power grids, and internet shut off and on.

We could be one major ransomware attack away from governments having the public support required to hobble cryptos with legislation, regulation, and possibly, confiscation.

With the road to the Promised Land blocked by statutes and sanctions, what’s the value proposition in this stuff?

Russian hackers either do not read The Rum Rebellion or if they do, they care less about the prospect of an equitable future and more about the money on offer today.

Market Expert Predicts ‘Double Bottom’ for ASX. Find out how to safeguard your wealth.

On 6 July 2021, ABC News reported:


ABC News

Source: ABC News

[Click to open in a new window]

To quote from the article (emphasis added)…

Hackers are demanding $US70 million ($92.9 million) in bitcoin in exchange for data stolen during a “gargantuan” attack on a US IT company that has shuttered hundreds of Swedish supermarkets.

Researchers believe more than 1,000 companies could have been affected by the attack on Miami-based firm Kaseya, which provides IT services to some 40,000 businesses around the world. 

The FBI warned on Sunday that the scale of the “ransomware” attack — a form of digital hostage-taking where hackers encrypt victims’ data and then demand money for restored access — is so large that it may be “unable to respond to each victim individually”.

It’s probably the biggest ransomware attack of all time,” said Ciaran Martin, cybersecurity professor at the University of Oxford.

For now, this is the ‘biggest ransomware attack of all time’. However, it’s a record that’s sure to be broken.

Wait another month or so and there’s bound to be an even bigger ransomware attack. Upping the ante with each attack…supermarkets today, power grids tomorrow.

Those in control of the money-printing cartels will be publicly denouncing these threats and disruptions to civilised society. Privately, it might be a different story. My guess is — if the Big Brother response to COVID is any guide — they’ll be delighted with the gift they’ve been given to ‘save society’. Plans will be afoot on how to capitalise on this menace to public safety.

Bitcoin will be vilified as the enabler of illegal activity. This is the currency of choice used by criminals, hackers, and fraudsters.

Only government tender can guarantee our security. Therefore, for the safety of the community, we must declare it as illegal tender.

I hear the cries of ‘won’t happen’ and ‘not possible’. And there’s the ‘Banning it won’t work, remember prohibition?’ response.

Making moonshine to sell locally is hardly the same product as a universally-accepted global payments system…one that threatens the most powerful institutions in the world.

Governments and central banks will not tolerate private crypto money to run in parallel with the system they control.

And if by chance they do, regulations and legislated restrictions will hobble it to the point it can barely walk, let alone roam free across national borders.

Governments are not going to be held to ransom by cryptos. They’ll turn this ransom annoyance into an opportunity.

When the hackers poke the bear one too many times, those privately-hatched plans will swing into action. Wait for it.

I don’t think the current crypto pricing has factored this looming reality into the value equation.

Regards,

Vern Gowdie Signature

Vern Gowdie,
Editor, The Rum Rebellion

PS: Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.


Vern has been involved in financial planning since 1986.

In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners.

His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia.

In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback.

In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry.

In 2013, he joined Fat Tail Investment Research as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter.

Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors.

His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.

Vern is Founder and Chairman of The Gowdie Advisory and The Gowdie Letter advisory service.


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