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October 5, 2020
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The Crypto State?

Bruno Maçaes, writes at City Journal

But here are my provisional suggestions on how things could go. The critical issue is, of course, taxation. It is here that crypto issues the more determinate challenge to the core powers of the modern nation-state. Some in the crypto space believe that the slow erosion of the state’s tax powers will eventually determine its final collapse, at least as we know it today. Others have told me that they expect all nation-states to disappear over the coming decades, with the notable exception of China, which alone, they maintain, has the political and social resources to penetrate or disable fundamental choke points in the crypto system. China is responsible for something between half and two-thirds of global Bitcoin mining, but local authorities have made it clear that they regard the crypto space with enormous suspicion. In 2017, China banned fund-raising through initial coin offerings, and all digital-currency exchanges were shut down. If Beijing decides to cut off the Bitcoin network in China, it could make it hard for mining pools to sync their data on blockchain with the rest of the world.

The Chinese case does offer a possible template for the ongoing power rivalry between crypto and nation-states. In this scenario, crypto systems would double down on their technological superiority, while states would necessarily appeal to their secret weapon: the monopoly of the legitimate use of physical force. But a second scenario seems much more plausible, at least outside China. Public authorities and crypto systems could reach a grand bargain or agreement, whereby the state would be able to tax crypto-assets in exchange for security guarantees for crypto. Legacy institutions and structures in the political world aren’t going away anytime soon, so it’s critical for blockchain projects to be able to interface with them. I believe that legacy systems can also benefit from this. The Swiss canton of Zug has taken initial steps in this direction: recently, it announced that beginning in 2021, taxes can be paid using Bitcoin and Ether.