Over at Reason, Liz Wolfe has a good piece on Hillary Clinton’s disappointment in crypto exchanges that won’t cut off Russians entirely. Here is what Clinton said:
“If the Ukrainians with our help can impose enough economic pain on [Russian President Vladimir] Putin and, sadly, the Russian people, combined with providing weapons…that might be the only way…that I can see us getting to a stalemate that might save the Ukrainian people from even greater tragedy,” said Clinton, referring to the broad-based sanctions imposed by Western governments on Russian financial institutions and state-owned companies.
Clinton added, “I was disappointed to see that some of the so-called crypto exchanges, not all of them, but some of them are refusing to end transactions with Russia for some philosophy of libertarianism or whatever,” later in the segment. “Everybody…should do as much as possible to isolate Russian economic activity right now.”
I have little to add from what Wolfe wrote. Go read her piece here. Yes, one feature of crypto is precisely that it transcends national borders and thereby provides a possible route for those who want to escape their government’s actions against them. It also provides an escape for people against the economic consequences — such as a collapsing domestic currency — that arise, for example, because of sanctions imposed by foreign governments. In my mind, that’s a good thing. Let’s remember that not every Russian using crypto is complicit in Putin’s attack on Ukraine. We should be careful to not lump ordinary Russians in with their ‘leader.’
We can, of course, debate whether in the case of Russia today the existence of cryptos will contribute positively or negatively to a speedy end to Putin’s vile invasion of Ukraine. But no one, including Mrs. Clinton, can know the answer.
I worry that Clinton’s thinking is widespread among government officials who will use this as an excuse to heavily regulate crypto exchanges (which is easier than regulating users). It’s not as if they aren’t pouring a lot of energy into doing just that already. Governments don’t like escape routes, as we have seen with their disgusting attempts to destroy tax competition. In the U.S., the latest such attempt is the implementation of a global minimum tax.
If indeed governments — deciding not to let this crisis go to waste — hinder cryptos as to damage the competition they potentially create, the easiest way is to crack down on exchanges since it is easier to go after these platforms than after the users themselves. Going back to the tax-competition analogy, the European Union, when it was trying to impose its EU Savings Tax Directive, was going after foreign banks and their lower-tax governments to force them to share the investment information of their national taxpayers abroad.
Unfortunately, we can’t fully count on most exchanges fighting to protect their consumers, as we have seen when the government has gone after other platforms to get to their users to prevent them from doing things they disapprove of or collect more taxes. These platforms or intermediaries often give up and throw their users/customers under the bus in hopes of saving themselves or preventing worse policies from the political overlords (the image of Facebook, Twitter, and other tech companies appearing before Congress and promising to do better comes to mind here). Such cravenness is naïve, of course, because if such tactics work in the first place, government officials won’t stop until they ultimately control everything.