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Money Reimagined: Is Cryptocurrency at a Crossroads?

It was already a huge topic when the “Conversation” portion of last Friday's newsletter reported the raging legislative discussion over the crypto provision in the Senate infrastructure bill. What occurred over the following three days, though, pushed it to a whole new level. The argument officially ended in a defeat for the crypto community, but as this week's editorial points out, it also served as a positive watershed moment in the technology's public image.

The legislative fight caught a new-versus-old conflict, as the editorial points out. The news hook for this week's podcast episode is the 50th anniversary of one of the most significant and underrated events of the second half of the twentieth century: the removal of the dollar's gold peg on Aug. 15, 1971. Sheila Warren and I discuss the history of that event and how it defines the impending digital currency battle with Cornell economic professor Eswar Prasad and CoinDesk podcast managing editor Adam B. Levine as our guests.

After you've finished reading the column, have a listen.

The moral high ground is a gift from Congress to crypto.

A defeat may be regarded as a triumph every now and again.

That's how I feel about the crypto community's valiant but ultimately unsuccessful effort to modify a very harmful cryptocurrency monitoring provision in the Senate's infrastructure funding bill.

The episode, which had a made-for-Hollywood storyline in which thousands of highly driven campaigners were ultimately stymied by a single, self-serving senator, has made it easier to convey crypto's tale of inexorable progress. The industry now has the same fundamental narrative that revolutionaries and activists have had throughout history, namely, that of a never-ending fight that will ultimately triumph when the old gives way to the new.

The crypto community, as my colleague Emily Parker pointed out this week, has to improve its storytelling skills. Even though proponents of Bitcoin continue to extol the advantages of a decentralized, peer-to-peer exchange and a provably scarce store of digital value, the concept has yet to catch on with a big enough segment of the general public. While views are changing as crypto use grows, the widespread lack of knowledge allows politicians like Sen. Elizabeth Warren (D-Massachusetts) to scream against the “dangers” of crypto.

However, the last week has seemed like a watershed moment.

It all began when Sen. Rob Portman (R-Ohio) slipped a provision into the infrastructure funding plan that would raise bitcoin exchanges' tax reporting obligations and generate an estimated $28 billion in additional tax revenue (as part of the measure's $1 trillion-plus price tag).

The provision's greatest flaw was the broad, catch-all wording defining what defines a "broker," which crypto industry attorneys warned might be interpreted in a variety of ways, possibly putting miners and open-source developers under a reporting requirement to the Internal Revenue Service. The clause, as worded, created the prospect of draconian monitoring of people's day-to-day transactions, would push crypto innovation offshore, and was very certainly unenforceable, as we argued in an editorial on Monday. 

Activists at the grass-roots level

Coin Center, the Blockchain Alliance, the Digital Chamber of Commerce, and the Association for Digital Asset Markets (ADAM) all sprang into action very quickly. Senators Ron Wyden (D-Oregon), Cynthia Lummis (R-Wyo.), and Pat Toomey (R-Pennsylvania) agreed to propose an amendment that would limit the obligation for reporting to exchanges that provide custodial services to their clients while exempting miners and developers. The fact that the sponsorship was nonpartisan was crucial.

These organizations effectively mobilized thousands of crypto aficionados to phone, write, and tweet their senators, asking them to support the Wyden-Lummis-Toomey amendment, thanks to some smart social media marketing by Fight for the Future. This massive demonstration demonstrated that, although lobbying organizations are financed by crypto companies, their true strength comes from crypto investors and others involved in the sector who are highly motivated to participate in grassroots efforts. It gave it the appearance of a popular message rather than one delivered by entrenched interests.

The advertising made an instant impression. Lawmakers from both chambers of Congress and across the political spectrum began to speak out in favor of the amendment, while condemning the original provision as a danger to American innovation leadership and a violation of privacy.

Even Portman said that the Senate should consider changing the provision's wording to eliminate ambiguity.

His first formal attempt to fix it, a competing amendment co-sponsored with Senators Mark Warner (D-Va.) and Kyrsten Sinema (D-Ariz.) in accordance with the White House and Treasury Department's wishes, arguably did more harm than good by attempting to distinguish between proof-of-work and proof-of-stake in a clumsy attempt to keep developers of the latter within the law's purview.

However, the three of them ultimately came to an agreement with Wyden, Lummis, and Toomey, writing a new amendment Monday that was approved by all six senators and that crypto advocacy organizations like Coin Center indicated they could support. For the crypto community, just getting to that stage was a huge accomplishment.

The straggler

The following few events were nearly laughable.

The proposed amendment received 99 out of 100 senators' backing in a consent vote that required 100 percent agreement. Richard Selby, a Republican from Alabama, was the lone holdout. He refused to approve the bill unless it included a $50 billion military contracting clause. Sen. Bernie Sanders (I-Vt.) voted against it, and the do-or-die amendment failed, leaving the bill's original crypto clause intact, despite widespread awareness of its problematic language. (Shelby even said there were flaws in it.)

Shelby's motivation, according to many in the crypto world, was to defend the interests of his Wall Street contributors rather than the military sector. He is retiring in 2022 after 35 years in the Senate, fueling a conspiracy theory that he was preparing the way for his employees to obtain positions on Wall Street when he left by doing the anti-crypto bidding of bankers.

Whether true or not, the image of a white, elderly man who has occupied his office since the Cold War petulantly refusing to support sensible legislation that is pro-innovation and designed to maximize long-term tax revenues, all for his own narrow, special interests, is precisely what crypto requires.

When set against the grassroots activism of tens of thousands of crypto fans throughout the nation, many of whom are several generations younger than Shelby, Shelby's obstinacy has become the poster child for the old guard opposing change in order to preserve its own interests. It speaks directly to the centralized gatekeepers issue that Bitcoin and other blockchain technologies aim to solve.

What better picture for crypto supporters to use to highlight the issue than that of an out-of-touch senator who has been taken by corporate interests and is obstructing the desires of every other senator? In this instance, he is referred to as "The 1%."

The community is rightly energised as the bill's battle moves to the House of Representatives. Sure, there will be lots of opposition from other self-interested lawmakers, but this badly written crypto clause may still pass.

Even if that occurs, the moral triumph has already been achieved. The crypto community, which was previously considered fringe, has gained legitimacy, which will ultimately lead to a legislative climate that is beneficial to the sector.

The narrative has shifted, with an ending that seems to be much more pro-industry than what its opponents had hoped for.

Out of this world: Punks and penguins

We're in the middle of a craze for chubby penguins, crypto punk, and bored monkeys. Of course, I'm referring about non-fungible tokens.

The NFT marketplace has a high volume of trading. This obsession is best represented by OpenSea. Check out this graphic produced by Shuai Hao of CoinDesk using data from Dune Analytics.

The NFT mania is still going strong, as shown by OpenSea's soaring August volumes. Many analysts thought the market was all hype when NFT prices soared early this year, only to plummet quickly, but these figures indicate otherwise. It is now more important to focus on volumes than than pricing.

This isn't to suggest that costs aren't rising as well. We're not talking about the $69.3 million grossed by Beeple's "The First 5,000 Days" in March. However, the 400 ether ($1.3 million) paid for this picture from the Bored Ape Yacht Club series is far from insignificant.

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