Blockchain and its Impacts on Democracy, Finance, and National Security
ZARATE: Good morning, everybody. Good morning. Hope everyone’s settling in, having a nice breakfast. Welcome. My name is Juan Zarate. Welcome to the CFR event, “Looking Ahead: Blockchain and Its Impact on Democracy, Finance, and National Security.”
I’m really honored to be up here with three deep experts, and colleagues and friends. To my left, Dante Disparte, the chief strategy officer and head of global policy for Circle. Dante and I have had the chance to work together often in the private sector, so it’s really a pleasure to be with you, Dante. Donna Redel, adjunct professor of blockchain and digital assets at Fordham Law School. Professor, welcome. We hope to learn from you today. Thank you.
And last but not least, Joseph Lubin, CEO of ConsenSys, Inc., one of the deep experts and one of the great firms working in the digital asset space, in particular with ethereum. So we’re looking forward to learning from Joe today. As I said, I’m Juan Zarate. I’m the global co-managing partner for K2 Integrity. My claim to fame is not only knowing Dante but also being the first advisor to Coinbase back in 2013-2014. So been watching this space very carefully,
especially through the lens of national security. So it’s an honor to be with you today. We’ll have a conversation up here for about thirty minutes, and then we’ll open it up to you. This is on the record. Keep that in mind. So watch your language, please. (Laughter.) And let’s go for it. Let me set the table a little bit for the conversation and then we’ll dig in, because these are big topics—not just the technology, but the issues of democracy, the nature and the future of the financial system, and national security. So I’m not sure
we’re going to be able to cover everything in an hour, but let’s try to set the table. I think we’re in an interesting moment in the context of both the technology and the policy. The technology has evolved in very interesting ways. And we’ll get into that. New use cases,
imagining of even better use cases for purposes of the future of the financial system efficiency and public policy goals. And we’ve also been through phases of perception of the technology. In the beginning, the early days, it was sort of a technology emerging in the garage of some interesting companies and people in Silicon Valley. It then became a question of risk—systemic risk, fraud risk, anti-money laundering risk. And we had the various cases that emerged as a result, and a lot of skepticism that grew as a result. Then a bit of euphoria with respect to the market, the bull run, Coinbase emerging publicly, a whole set of things that started to legitimate the technology, in particular the cryptocurrency ecosystem. And then the crypto winter, the skepticism, the regulatory crackdowns here in the United States, which then drew further skepticism.
And now it feels like we’re in a period of policy and market euphoria again. (Laughs.) We’re on the brink of bitcoin at almost $100,000, which in some ways was the wild imaginings of folks just a few months ago, when bitcoin had dropped down to 15,000. You recall folks sort of imagining, you know, when might it hit 100,000? Well, we may be on the brink as we sit here today. So let’s talk about all this,
because there’s so many fundamental issues at play when you talk about the technology. Joe, let’s start with you. We have a great audience. I can see a lot of people in the industry and who are real experts, some who are new to the technology. Can you level set for us sort of the state of blockchain technology, kind of where it sits and where it’s going from your perspective? LUBIN: Sure. So thanks for having me here today. The bigger picture is that blockchain, or Web3 as I prefer to call it, is the natural evolution of the internet protocols and the web protocols. And so the internet protocols were built on open
protocols and open specifications. Web1 started in 1989. Again, open protocols, open specifications. All that was built in a very decentralized fashion. So power, technology, et cetera, was widely distributed. Towards the dot-com boom there became such a big price, so much value moving into the industry, into the ecosystem. And I think if decentralized protocols existed and were mature enough, developers probably would have tried to build social media, e-commerce, et cetera, on that technology. But, but they simply weren’t strong enough. They weren’t scalable enough. And so what we ended up with are silos, moats, walled gardens.
And that was great for the world for quite a while. It led to globalization, but it ended up turning pretty toxic because big technology ended up knowing more about us than we know. Add little AI to that, and they started doing, effectively, psychological experiments on the population at times, which is a little bit disturbing. So big tech has turned into a
weapon of mass manipulation that is available not just to American interests, if you’ll pay for it, but also to foreign enemy interests to manipulate the American populace. And big tech plus AI, if it remains centralized, will become the most powerful weapon or tool of control that we can imagine. So Web3 is being built with open specifications, open protocols. It represents the re-decentralization of the World Wide Web. So it is essentially also a flipping of the vector of trust. So trust in the world, for millennia, has operated via authorities, top down through intermediaries. All the intermediaries maintain a ledger or
database of who owns what, knows what rights and responsibilities. Satoshi Nakamoto comes along, and he invents this new paradigm, decentralized trust. And so that enables us to build a database for the world. It’s open. It’s inspectable. People can upload programs. People can permissionlessly use those programs. And so we have a new trust foundation for the planet, radically decentralized foundation for essentially rearchitecting all the systems of the world.
So the first system—well, many different projects were tried. But the first system that gained real traction was this idea that we could take everything that we built, everything we need, everything we’ve learned in traditional finance, and reimagine it in the form of decentralized finance. So more open, more fair, more transparent, more secure. And so based on a new trust foundation and a new decentralized financial infrastructure we can now cross the chasm into mainstream culture, because we’re now—after many years of building—we’re now scalable enough, we’re now affordable enough in terms of block space and transactions. We’re now usable enough. And there are innovations coming so that it’s going to get—be very usable for people, even better than the internet. And it might even become legal in the United States to
work in this industry. Even though there are no laws against it, it has effectively been illegal for us to work in this industry for certain reasons, based on the current regime. ZARATE: Joe, that’s a great baseline. So thank you for that. I’m going to come back to you on some of the innovations where you see this playing out in democratization and in the financial system. I want to key off your theme, though, of centralization/decentralization, because that’s at the heart of both the design as well as some of the regulatory pressures. And Professor Redel,
I want to turn to you to give us a baseline in terms of how the U.S. regulators and authorities, and the legal structure, has sort of reacted to or is adapting to the new technology, and how you compare that to what’s happening internationally. And then, Dante, I’m going to turn to you for a couple of important follow on questions. Professor. REDEL: Well, I think that it’s clear that the industry has been asking for a long time for clarity of regulation. That doesn’t mean we needed it from the onset, because regulation
sometimes can stymie innovation. But we needed to know a clear pathway of where you can innovate, where are the gray areas, where is the touchstones. And for at least the regulators to start to understand what is the power of this new technology, how it’s going to change the dynamics, and how it’s making money move in real time. And that is a fundamental difference from where we have been. So if we say that the internet enabled information to move in real time, and now that you have digital assets on top of blockchains in all different other kinds of ways, you have a system that works twenty-four by seven. But we’re constrained into a system on a regulatory basis and also in a financial world that doesn’t operate at that—like that at all.
And so when I have the ability to take—and I’ll get into what Dante will talk about—a coin, a stablecoin, backed by U.S. dollars, Treasurys, and move it to somebody that is my loved one, let’s say, in France, in Philippines, in anywhere that I want to support—maybe they’re in trouble, or maybe I help pay their—I help pay part of their rent—it happens instantaneously. And so when new financial technology comes along, there’s always a press back. But the press back should enable innovation to happen, not stymie innovation. It should enable the regulatory framework to expand, not to contract around it. And so I think that the U.S. has not gone down that pathway. The new administration has indicated they will put in a series of regulations that make sense. There have been many, many bills that have gone to Congress. But we know,
even though this is Washington, Congress has not been the most helpful organization in getting bills passed. So I think that in 2025 we will see the U.S. walk down the path of a good stablecoin bill. I think we will have a reasonable chance at a comprehensive market bill. And people will understand that they can operate, grow, and prosper in the U.S. as innovators, as users, et cetera. Instead of many, many of these protocols having features that block U.S. persons that actually have code in the coin that says you cannot go into a U.S. person’s wallet,
as you can’t go into a North Korean’s, or this or— you know, or Venezuelans, et cetera. And I think we should be supporting innovation instead of, you know, trying to go like this to it. ZARATE: Donna, I’m going to come back to you in a second to talk about how you view the Europeans and others regulating the sector, and how that either matches or competes with what you think is coming from the U.S. But, Dante, I want to turn to you, in part because you’ve been—you’ve
been a—almost one of the leading spokespersons for the industry. You’ve had different roles. You’ve seen it evolve. How do you—how do you think about the evolution of the perception of blockchain technologies, and particularly what Circle is trying to do with USTC and stablecoins? DISPARTE: Yeah. I mean, first of all, it’s an honor to be here with you, Juan, and with such luminaries on the panel with me.
I mean, the first point is just to kind of anchor this in what I think is one of the biggest gaps we have in the United States right now, and frankly in the West, which is a deep technophobia. There’s a very, very deep overcorrection from some of the issues that Joe described, of overreach from big tech and the dependency that so much of society has on tools and services for which the terms of service agreement points to single postal code in Silicon Valley. And so the overcorrection, over the last five years especially, has been let’s then stop any novel form of technological innovation to compete. And, sure, there have been—in the decade of digital assets sort of going through their boom and bust cycle, or crypto winters, or, frankly, in some cases, a crypto ice age—there have been some really teachable, eyewatering lessons in unchecked fraud, unchecked greed, and all kinds of market conduct that in some ways vindicates the regulatory fear and the policy fear. But at the same time, every single organization, including, for example, FTX Japan, that was brought into the regulatory perimeter ended up not only being able to return funds to their customers, but also show that the more you put principles in place versus prescription, you could in fact have a technology-neutral regulatory regime.
And so that then gets to what’s the state of play in the United States? So, you know, my company, Circle, has uploaded the U.S. dollar onto the internet. We’ve done so in a manner that would put to shame the type of prudential risk you would see in large systemic banks, because there’s no fractionalization, there’s no maturity transformation. And we’re literally paying homage to the full faith and credit of the U.S. banking system and the full faith and credit, of course, of the central bank, and import those policy principles and priorities. We
would also not be deserving of a CFR stage if we didn’t cage this in geopolitics, geostrategy, and competitive realities around the world. If your and my financial needs took a break like the banking system takes bank holidays, then we would fail to perform in the twenty-first century. Just look backwards at the COVID-19 pandemic. We moved government-to-citizen payments to the tune of trillions. And we couldn’t do it fast, at the speed of human need in our society, because we don’t have fast, open payment systems. Guess what? If you use public blockchain infrastructure, basic, free,
mobile-enabled wallets, and a digital currency like a stablecoin, you wouldn’t have had anything close to the fraud, the mismanagement, and the slow movement of money, even domestically. That’s a domestic security vulnerability that China, Russia, and competitive countries didn’t visit upon the United States. It’s the void of competitive open payments domestically. And so that should be a technology-neutral policy objective to ensure that anyone, anywhere can get access to the financial system. The tech is the easy part. And so
just to cage this then in both the opportunity and a little bit of a reflection, having had the awkward witness seat in most of the global hearings and domestic ones on this innovation. Is imagine stopping the development of the internet at the world wide wait phase, because it was a dark web before it became the ubiquitous fabric of the global economy that we take for granted today. That’s exactly what the policy environment has done to this technology. And it’s time stamped it towards the worst activities as opposed to the best activities. The Biden administration was the first U.S. administration to put out an executive order for a whole-of-government study of this technology. And I was encouraged by that. I even wrote an article
in Project Syndicate about it. And unfortunately, crypto decided to have a crash. Guess what triggered the crash? Misdeeds, misbehavior, and people. Because people will co-opt any technology, including digital assets and blockchains. And the technologies are imperfect, but they
often show us where status quo falls short. And there’s no better, no clearer place than money. And so what we do at Circle with stablecoins—the term of art is a horrible term of art, frankly, because not all stablecoins are created equal. But we’ve literally created a digital dollar. And in the span of six years, we’ve gone from zero to availability in more than 200 countries. And we’ve processed in that same time frame, more than $17 trillion in cumulative activity. We’ve done so in an open manner, which overcomes the most insidious issue in payments which is the walled garden problem. Today a major payments company’s service no longer works, for some strange reason, because so much of the financial infrastructure that we depend on—remember, Equifax—is single points of failure honeypot databases that monetize your information forever and expose you to personal identity theft risks and other risks for the rest of your natural life. So I think rearchitecting this—last word, and I know you have a full suite of questions
to ask the panel—rearchitecting this, where the internet was a genuinely disruptive technology and the best that you could do, if you were a content provider, was erect a firewall, which was a feeble defense against the onset of the internet. Actual blockchain infrastructure is an augmenting technology. Few firms are being disrupted by blockchains. The ones that are embracing it look analogous to embracing cloud computing. So if you think of this as foundational infrastructure, the question then is, well, what activity could I do now that I could extend it a little bit further, in the same way that Donna and Joe just described? REDEL: Yeah, and I just want to pick up on one thing, since it is the Council. You know, the stablecoins that are backed by U.S. Treasurys are helping the government be able to keep the dollar as an important reserve globally, because people are using all over the world these stablecoins, backed by U.S. Treasurys. I believe, and the figure may have changed, but it’s at least in
the top ten holders—the stablecoin aggregated companies—of U.S. Treasurys. Which makes them very important for promoting the dollar around the world, against what is now, let’s say, central bank digital currencies of China, and I’ve heard that China, Russia, and Brazil might want to do one together, where they’re not going to have privacy and they’re going to be able to track the movements of money that goes throughout the system, the global system. And that, I think, is something that the U.S. government should be very concerned—I know
they are very concerned about. But helping to create an environment in which we know the regulatory certainty, we can grow this in a way that is helpful for the U.S. government, helpful for the economy, and globally secures the position of ourselves in ways that the government sees and the individual sees as something that is in our future interests, is really important. LUBIN: Yeah, can I just add a few pieces? ZARATE: Yeah, go ahead, Joe.
LUBIN: So, A, it is great to have a more diversified set of lenders for the United States, as certain lenders are pulling back on their desire to lend to the United States. And so they are just many projects. One great one, many other projects that are interested in issuing stablecoins. We could see white-labeled stablecoins, et cetera. So it really could become the dominant currency of Web3. B, it is very important for the people of the world to all have access, permissionless, effectively, access to a stable currency. So if you’re living under a regime that is abusing the currency, you can protect your assets by being in digital currencies, by being in a stablecoin currency. But you’re also weakening that nation state.
And so one could frame a decentralized protocol technology as consistent with the principles of the United States of America, going back to the founding fathers, consistent with Western liberal democracy. And so enabling decentralized rearchitecting of the world, and enabling everybody in the world to have stable currency in their digital wallet, will enable the American experiment to perhaps be extended. ZARATE: I want to come back to that, Joe, because there have been, in some ways, pilots and projects to do exactly that, to square the circle around U.S. policy and the
use of the technology, aid in capital moving into Venezuela, for example, out of the hands of the Maduro regime, looking at this in Afghanistan under Taliban control to make sure the Taliban can’t get access to money, for example, to women’s groups, et cetera. Ukraine aid has also—you know, we’ve seen crypto being used to support activists there. So I think I want to come back to that, because I think it’s a really important point. But let me ask you this. I’m going to be provocative with a couple of these
questions intentionally. Why haven’t—why haven’t more of these use cases emerged? And I’m going to ask you too, Dante. Because we know the payment system is inefficient. The banking system’s not on twenty-four/seven. Remittances are too expensive, onerous. We have
these pockets around the world, conflict zones and otherwise, that would benefit from this. Why hasn’t it taken hold in the way that we’ve imagined? So, Joe, let me ask you that first. LUBIN: Sure. So as you can imagine, this is a big paradigm shift. And it may be the biggest paradigm shift in the evolution of human society. So we’re talking—the internet was a massive paradigm shift. Enabled lots of people and companies to go online. But still, you are—you’re accessing the internet through a screen. Pretty two dimensional. Web3 is going
to pervade everything with decentralized physical infrastructure, et cetera. All the world’s systems are going to be on this new trust foundation. And so we spent years—Satoshi Nakamoto did their work in 2008-2009. The Ethereum Project started in 2014. So we’ve spent years building layer after layer, module after module of scalability and functionality.
And so we knew when we started the project that we’d be building a toy system. And it was a very powerful toy system that enabled people to understand how to write the programs that run on blockchain. And effectively we’ve gone through many different iterations of the protocol to enable us to build something that is just very recently scalable enough so that we can start to support real-world systems. So, again, scalable enough, affordable enough, usable enough, hopefully legal and promoted in the United States of America. And so we have seen some projects. We have seen finance nerds get excited to join the crypto nerds to build out decentralized finance. We’ve seen art nerds get excited to build out the NFT
ecosystem and even the meme coin ecosystem. And we really need people and Web2 developers from all niches to rearchitect things. And that’s picking up steam quite dramatically. REDEL: I think, you know, that what we’ve been doing is building the foundational components. And there have been many, you know, developers, finance people, legal people, et cetera, working on that. What we haven’t been able to do is make it really easy for individuals to use in a seamless way yet. Yes, the nerdy people know how to use it. But that’s not the same thing.
ZARATE: No offense, by the way. REDEL: No, no, no. You all are all nerdy. You’re totally nerds. (Laughter.) But that doesn’t—and my students, whether—you know, whether they’re law students or business school students—they generally, generally, know how to use it. But when you go up the ladder, in the same way that people
didn’t know how to use the internet or still felt uncomfortable with it, there’s something new. You’re nervous. You’re scared. And technology should be something that we can roll out in a bite-sized, comprehensible way that people slowly, slowly, slowly, and all of a sudden, you’re there.
And that’s where I think we’re going now. So if we can fix the clouds of the regulatory structure, if we can have easy methodologies that people can enter into this permissionless world, and that that builds the trust foundation—whether it is using a theory of blockchain or using Circle stablecoins or payments. But you’ll hear every major company talking about how they’re entering this world. So I think they will create easy ways for access. And I think that’s the big thing. ZARATE: Dante, you’ve been climbing this mountain for a while. What’s been—what’s been the struggle here? Is it the lack of regulatory clarity? Is it the lack of scaling and technology? Is it the lack of just sort of comfort with the paradigm shift? What’s really holding the industry and the technology back? DISPARTE: Yeah. So I guess you asked a question which is, in some respects, applying a purity test
to an industry that incumbents have had hundreds of years of a head start to address. For example, neither a physical dollar nor a digital dollar has agency. And so your question about, well, why aren’t more people then explicitly able to show progress on financial inclusion issues, which for many in fintech, not just crypto, it’s a fig leaf. And then as I sat there getting grilled by the then-Chair Sherrod Brown in the Senate Banking Committee on the scorecard of my company and others in this space to make progress here, I said, well, it’s obvious that if neither a physical or a digital dollar has agency, then you need to be very deliberate in constructing a value chain that then makes it very easy to make real progress. And so again, in the context of CFR, the world’s most important cash flow is peer-to-peer payments, remittances. It’s bigger than official development assistance and bigger than
foreign direct investment. And typically it’s recession resistant—typically. But if you want to introduce competition there, then you need both ends of the transaction to be equipped with digital wallets. You need blockchains that actually work. And the good news is, the technologists and the technologies are not standing still so you’re achieving over time Visa-scale transaction throughput on open financial infrastructure. And the last piece of the puzzle—and so some of the countries you described are actually projects Circle has been very directly involved in—pandemic relief in Venezuela for a corruption resistant, instant, auditable, completely compliant money flow, that arrives at the palms of the doctors addressing the pandemic. USDC was the digital currency supporting this project, but it was done with the blessing of the U.S. government, of OFAC,
of State. But on the receiving end, the wallet provider is a local organization called AirTM. Powerful network of moving digital money that’s corruption resistant. Think of the alternative in the aid context. A pallet of physical cash flown to the Bagram Air Base is not only a logistical nightmare, it’s a honeypot for corruption, bribery, and fraud. So— ZARATE: Be nice if we controlled that base, but that’s a different—that’s a different question. (Laughs.)
DISPARTE: Right, well—(laughs)—not to—not to mention—I think it’s an ugly chapter in our history. ZARATE: Yeah. Yeah. DISPARTE: But I think we’re architecting collectively a completely distinct blueprint for how you could deliver impact. And to Joe’s point earlier and Donna’s point earlier, this is an idea of people selecting a political economy. That is a very powerful, uniquely Western
idea. And so over time, the more we get legal and regulatory clarity could only then raise all ships. In the same way that we needed laws to enable this kind of proliferation of the internet, its first version, we’re going to need rule of law also to proliferate a set of standards here. And then the last quick piece of the puzzle is, you know, there is—there is a reason nation-states triggered this central bank digital currency space race. It’s because
when these technologies actually do work, and the first killer use case, of course, is money and the movement of money, which is monopolistic or duopolistic, if we’re lucky, then you start to see pretty big implications for how money moves around the world, pretty big implications for the role of the dollar in the twenty-first century. The dollar enjoys its extraordinary privileges partly because of a fluke but mostly because of free market competition in ensuring that the dollar could reach under any shade tree anywhere in the world. And now we have a whole cross section of humanity that depend on technology for dollar access. And these types of products and services and networks are getting us there. REDEL: Yeah. And to just pick up on at least one of the things that Dante said, between the U.S. and Latin America, South America, Mexico,
et cetera, there has been so much movement of stablecoin. And principally because, number one, as Joe had mentioned, their currencies are unstable. AirTM, which Dante brought up, is working with stablecoin in order to for people—regular people that are involved in the gig economy, people selling something on Etsy, or otherwise like that. To create for them a regulatory compliant way in which to be able to get paid, and also, you know, keep the money in their wallets instead of having to give it into a banking system that may not be—that may not, A, be dependable, B, there’s deflation all the time of their own currency, and their ability to hold U.S. dollars is constrained by all kinds of regulations, with whether it’s moving money in Argentina, Brazil, et cetera. So we have people that are involved in the economic system using U.S. dollars, getting paid, being able to protect
themselves against the terrible deflation and inflation that’s happening in their country. And this is all happening around—because of innovation around this technology. ZARATE: Yeah. It just reminds me of the origin story of Coinbase, Brian Armstrong, having gone down—having read the paper, the white paper, and having gone to Argentina and sort of having kind of a revelation down there, for precisely those reasons. Two more quick questions then we’ll turn to the audience. Joe, I want to ask you, maybe just taking a step back, because firms like Circle, Coinbase, yours, have been calling for regulation. But there’s a—there’s a lot of tension in the developer community,
even the technology community, around too much involvement of the government. The great work of firms like TRM Labs and others that do—can trace, using open ledger technology, even the claw back. We saw that in the Colonial Pipeline case with the ransomware. You know, those are all seen as good public policy, law enforcement, intelligence goals. But to many in the technology community, that’s anathema to this idea that this is an open technology, shouldn’t be controlled, shouldn’t be centralized. And then I’m going to come to the question of China in this regard. So, Joe, how does the—how does the industry, how do the technologists that you deal with—that you, in a sense, deal with that tension? There is the potential use by the government of these technologies, but that’s not really how this was built.
LUBIN: So I think that’s a discussion that our ecosystem and different nation-states, not just this one, need to have, because it’s a very powerful technology and each political philosophy for each different nation-state will have to figure out how to situate the technology into its culture. America won the internet. That was very good for America. And that was very good for the people of the world. America won the internet because—there was an initial backlash, just like this. There were legislation, like the Telecom Act of ’96, and other pieces. There was safe harbor approach erected. There was no taxation for a number of years in order to enable the industry
to get started. And so let’s talk about America rather than the other countries of the world. This technology is more powerful than the internet technology. This technology must be made necessarily complementary to AI technology, which is perhaps an even more powerful technology. And so if—I said it before—AI can grow very dangerous. It can also be incredibly empowering, if built
openly, transparently, governed transparently, built on decentralized protocol rails. There are some great projects doing that. So we really need open source and an open, transparent approach to the marriage of decentralized protocols, crypto, AI. And, you know, our technology is going to speed everything up. If you make money move faster, if you make innovation—permissionless innovation move faster, then you’re essentially compressing the duration between value creation events closer and closer. And that that leads to compounding of
value. So it really accelerates the development of a society. And America’s superpower is diversity and innovation. So other countries that don’t like diversity and don’t foster innovation quite as much, copycat societies versus net new societies, will not do as well even if they embrace this technology, because that’s not their culture. So we need as open, permissionless, and decentralized an approach as possible for America to get the most benefit out of the technology. ZARATE: Dante, very quickly, and it’s not a quick question. We could have a full-day conference on
this. The challenge of China. China clearly is trying to control elements of the technology. To Joe’s point, sort of in their surveillance state sort of system, in many ways. They’re also the chief exponent of the e-CNY, the digital yuan. They’re embedded in the mBridge Project, which is trying to innovate cross-border payment settlement through the use of the digital yuan. How do you see the geoeconomic competition with China through the lens of blockchain technology? DISPARTE: Yeah. I mean, one—the best advertisement for blockchain is perhaps
the fact that when the PBOC was studying what to do about a digital currency project, a central bank digital currency project, they actually opted for an architecture completely distinct from blockchain-based payments, in part because of all of the features of preserving privacy, and compartmentalization, and all the rest. So there’s a really important design feature there that is in some ways the best case study for how to win the digital currency space race. The second is, of course, an attempt to export the yuan. And the real undercurrent of this is
you don’t weaponize a currency. You weaponize the rails on which the currency rides. And the effectiveness of Western sanctions, for example, against Russia is the degrees to which networks like SWIFT will take your phone call. Perhaps many of you in this room, or many who might be listening later. And that obligation is an obligation executed
by people. And what the technologies around sanctions-resistant payment regimes or alternative payment systems are the rails in which alternative currencies will eventually take off. And so we should be watchful of this. Now, the last quick thing I would say is obviously every central bank in the world, after a certain project that I was involved in in 2019 was announced, started embarking on this race of keeping up with the Joneses and launching these central bank digital currency experiments. Most of them, however, are still just that—experiments. All but one major central bank, the e-CNY and China, have launched this into production. And my question to this discussion is, do you want the FAA here in the United States flying planes and building jet engines? Or do you want the FAA to effectively designate the rules of safety and conduct in the skies and that we encourage competition? We’re going to be very, very starving for choice if, in fact, our central banks in the West become competitors to high street banks and competitors to payments companies. We’re better off having
rules-based competition. And we’re better off to the extent the entities and/or the actors that participate are obligated to Western values, obligated to financial crime compliance, and other regimes. And a company like Circle, we’ve proven that not only can you have a standard of compliance that’s as good as our peers, you could actually get to a standard further, which is this idea of effective deterrence. If you know that these types of digital currency tools will be responsive, preserve privacy at once but also be responsive to sanctions and other obligations, it’s a powerful tool to export U.S. collars everywhere, but also at the same time to respect sanctions and other national security imperatives. REDEL: Yeah, just to pick up on the China—I mean, I don’t know if everybody here understands the kinds of experiments that China was doing. So, for example,
I give you $25 million dollars, all—or, 25 million in yuan. And I tell you you’re allowed to only use it for transportation. And I’m going to track where you’re going. And then in two weeks, the money disappears from your wallet. OK, that’s what they did. Then you can use it for food, but not wine. So they have the ability—now also superimpose that not only on their own population, but now we know that China is very active in Africa and in South America with building resources, mining, all the other kinds of things they’re doing. What if they require those countries to be paid in their digital yuan? Then they track it through the entire system. They see what everybody’s spending money on, until it gets back to China.
And this is the—one of the key, important things that people need to understand about privacy. Though the government can—we don’t—I mean, I don’t want the government to see every single thing I’m spending. Maybe they don’t want me to spend it on wine, or they don’t want me to spend it on some women’s issues, or something else. And so I do think that this ability to decide what you’re doing—in a productive way. Not in any kind of negative or illegal way—is
really important for Americans to understand that protecting the ability to use your money in a way that is not information gathering, in the same way that Joe talked about how the web we didn’t understand how much information people were gathering about us on the internet. This is another thing why a permissionless system on blockchain is so relevant, so important to our own freedoms, and also to the importance of the United States and security. ZARATE: I would just add a quick footnote as we go to the audience for questions. I’ve often said, and we’ve studied this idea, of the alliance of financial rogues. I wrote about it in my book. And this idea of the connection of payment rails between those systems that are either being
isolated via sanctions or that are wanting to find alternate ways of transmitting value or settling across borders. And so the—as you see the alliance between China, Russia, North Korea, Iran, Belarus, Venezuela evolve, this question of how this technology might be misused by those actors is an interesting one, and an important one to watch. Questions now. Mark. And if you could identify yourself and then ask a quick question. Q: Mark Kennedy, Wilson Center.
My question is on the Chinese digital currency. If it’s collecting all that information, data empowers AI models. Are they going to be able to use all that information they’re getting in that currency to further empower their AI? DISPARTE: That’s a great question. I mean, well, the short answer is yes. And we should also,
of course, think of the advent of the Chinese digital currency—central bank digital currency project as also an example, in some respects, of soft expropriation of domestic fintechs that were getting a little too big and a little too plucky. And so it’s notable that, you know, obviously, data is the best resource that you’re going to acquire from these types of payment systems, in the end. And the type of architecture that we’re describing today is one that would protect and compartmentalize people’s information. So another way to think of it—and, you know, I’ll try not to use too many more analogies—(laughs)—is if data is the new oil, blockchain may very well be a new barrel in which that type of data can be secured in alternative structures. And so there is zero question that the type of information being accrued through reporti
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