A Currency By Any Other Name
Exploring an alternate currency on the fringe, PLUS the DOJ has essentially won the war against Crypto without firing a shot.
There’s Goldbacks In Them Hills
Let’s say that you aren’t satisfied with the current system of fiat currency—specifically the U.S. dollar. Sure, it has its upsides (price stability, reserve status, et cetera), but you think it’s missing a key ingredient: physical asset backing.
So, what do you do? Go and start buying gold and hoarding it? Dump all your money into crypto? Unfortunately, neither of these options is very fungible.1 It’s quite difficult to pay for your kid’s preschool in gold coins.
What if there was a way, then, for you to buy gold and own it in a fungible form and stick it to Jerome Powell? You’re in luck because someone has turned this very idea into reality.
It’s called the Goldback. And it’s even wackier than you might think.
It’s not a difficult concept. The company creates Goldbacks, which are each inlaid with 1/1,000th of an ounce of gold. You can buy Goldbacks from a handful of dealers (with fun names like The People Restored, LLC, and Liquid Bullion Nuggets) and then use them like you would any other bit of paper currency.
This might all seem like weird corner-of-the-internet crankery, but it’s more popular than you might realize. Founded in 2019, the company has sold more than 7 million Goldbacks2. More than 700 small businesses in Wyoming, South Dakota, New Hampshire, Utah, and Nevada accept Goldbacks.
The company also has… interesting legal theories about their medium of exchange (full disclosure I am not a lawyer and nothing here is legal advice). For one, the whole premise seems to kind of… I don’t know, fly in the face of federal law, in particular, 18 USC § 486, which reads:
Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title or imprisoned not more than five years, or both.
So, yeah, that seems relatively clear.
For one, the Goldback is not the first attempt to mount a challenge to the dollar. Consider the curious case of the Liberty Dollar, brought into existence by Bernard von NotHaus (seriously). The Liberty Dollar’s premise was quite similar to the premise of the Goldback—its value would be based on the price of silver.
Anyway, it wasn’t long before the FBI and Secret Service brought charges against von NotHaus and ended the whole Liberty Dollar experiment.
Now, I think (think!) a key way in which the whole Goldback enterprise is attempting to end-run the feds is by making it explicit that a Goldback (being used as specie tender, and not as legal tender) can only be used in the state in which the particular Goldback is authorized. As I understand it, a South Dakota Goldback cannot be used in Utah for instance.
But, in keeping with the fractured, decentralized nature of this whole experiment, not even the whole ‘keep it in the state border’ argument is safe. Liquid Bullion Nuggets, for instance, has this little tidbit to say about the Goldbacks it sells on its website:
The Goldback is believed to be legal tender in the State of Utah and was created with the intent of it being circulated as a currency. These Nevada Goldbacks can also be used to barter anywhere in the United States.
Yeah. Can’t imagine that statement running afoul of government regulators as to the intent of the whole enterprise.
While all of this is interesting, it’s also more than a bit maddening. The Free Banking era was a time of absolute lawlessness in regards to currency regulation. States and individual banks could print their own notes, and the holders of those notes in return got the joy of hoping that their life savings would still be there when they woke up in the morning.
And we haven’t even scratched the surface of the pain-in-the-ass-practicality of this whole project. Let’s say you walk into a store with this sign:
If you were buying in regular fiat money, you would get what you want to buy, go to the register, and do one of the following:
Swipe your card and follow the instructions on the screen.
Pay in cash and collect your change.
The process of paying in Goldbacks doesn’t seem like it would be so simple. At a minimum, you would:
Check the spot price of gold and agree on the exchange rate (as of right now the exchange rate for a Goldback is roughly $4).
Pay in Goldbacks for your items.
Not collect change? A single Goldback isn’t divisible, and stores don’t generally price items in $4 increments.3
Sure, Goldback proponents would argue that the above friction is part of the cost of disentangling yourself from fiat tyranny, and that cost is relatively small.
And of course, no amount of argument is likely to change anyone’s mind here, because at the end of the day you go back and forth in debate until you’ve exhausted common ground and you’re just left with the pure differences of your opinions. With that, I’ll leave you with a little gem from the Goldback folks about just how serious the feds are about maintaining fiat supremacy:
The Federal Reserve working with the State to quash competition became the boogeyman. This paradigm was reinforced by what happened in Libya [Video], when President Gaddafi was supposedly killed by Western backed terrorists for trying to make a gold currency.
I mean, how do you argue with someone willing to take that position?
The DOJ Can’t Stop Winning
Speaking of wannabe currencies, the DOJ is going to gut the crypto industry and do it without really firing a shot at the technology itself.
The recent suit against Binance alleges what has become the standard fare for crypto criminality—a lack of basic KYC and AML4 controls that are standard practice in the financial services industry.
There are, however, a huge swath of crypto enthusiasts for whom the lack of KYC and AML is a feature, not a bug. They’re not all terrorists, either. Many are just overly libertarian-ized tech optimists who think that anything that detracts from the legitimacy of the dollar (and the specter of a future digital dollar) is a worthy project. (Ironically, they want to make digital transactions as potentially private as cash transactions, but crypto has a terrible track record for keeping transactions private.)
Anyway, I’ve always been a bit shocked that the U.S. and other governments (aside from China) haven’t adopted a scorched earth campaign against crypto writ large as a potential usurper to the nation-state’s ability to maintain a monopoly in the currency business.
So, it seems that the U.S. Justice Department has decided to take a different approach—something along the lines of ‘if you can’t beat ‘em, make ‘em comply.’ In other words, the task of completely dismantling crypto as a thing was not likely to work, but imposing basic regulatory and legal frameworks onto crypto… well… that’s not so difficult.
The result is that Crypto with a Big C is likely going to look much, much different than it did even a year ago. First, the most die-hard users will most certainly object to the oversight of U.S. financial regulation (the lack of which was a big part of the allure of crypto to begin with). Second, those less-than-reputable participants in the space will also want to avoid anything that could put them in the crosshairs of the SEC, DOJ or the New York DFS.
Consider this bit from a recent Bloomberg opinion piece:
There is a parallel split on the regulatory side between people who want to bring crypto into the existing legal regime, and those who prefer to isolate crypto from fiat money as much as possible. Zhao’s deal with US regulators appears to be a victory for the former group. If the deal satisfies both sides, we can expect other crypto frontier gunslingers to come in from the cold.
The future of crypto will be determined by the technology, not by billionaires and lawyers negotiating over frontier real estate. If crypto comes up with the “killer app” that will convince hundreds of millions of people to learn real crypto — not just holding cryptocurrencies in portfolios or speculating in NFTs — then it will take off on its own, without needing to ask regulators for permission or traditional investors for capital. Without a killer app, crypto will remain a useful technical tool for niche projects and true believers. There won’t be enough economic value in it to interest lawyers or most investors.
The author’s first paragraph makes complete sense, but the second paragraph reads, unfortunately, like so much delusion from the true believer who can’t seem to accept that even though the ostensible end is here, it isn’t really the end. For one, I have no idea what people learning “the real crypto” is. If it isn’t “holding cryptocurrencies in portfolios” then what is it? An expensive hobby?
At any rate, what seems clear is that while the ultimate reckoning for crypto is far from over, the writing certainly appears to be on the wall.
Final Thoughts…
Charlie Munger, legendary partner to Warren Buffett, has passed at age 99. At least some members of the Fed allude to an interest rate hike pause. The UAE may be running an inside job on the COP. The human side of China’s property crisis. Airlines are looking to combat climate change with sawdust. It’s tough out there: housing costs are now so crazy high that divorced couples can’t afford to actually split up.
I mean, sure, crypto and other barter-based currencies are fungible at some level, but they can’t be used nearly as friction-free as traditional fiat currency.
Obviously this is a fraction of a fraction of a percent of outstanding fiat currency, but still not nothing.
Even more problematic on the question of change is that you can’t be given change in fiat for a purchase made principally in Goldbacks due to the taxation issues that would arise for the seller.
Know Your Customer and Anti Money Laundering.