Cointelegraph has been busy rummaging through a wealth of a likely future Chairman of the Securities and Exchange Commission Gary Gensler’s thoughts on crypto, especially from a series of lectures he gave to MIT in the fall of 2018. A particularly notable element of Gensler’s thinking is his obvious respect for Bitcoin’s internal governance mechanism and his clear interest in seeing that decentralization elsewhere in the financial world.
12 years after the inception of BTC, there aren’t many serious characters in the US federal government calling for something as misguided as a Bitcoin ban. Even antagonists recognize that such a measure would be impossible. But in addition to tolerance, Gensler is clearly intrigued by Bitcoin’s mechanisms for internal decentralized regulation and optimistic about applying their principles elsewhere in the financial world.
Gensler is decentralized
Famously, the SEC has decided that Bitcoin is a commodity, under the remit of the Commodity Futures Trading Commission (which chaired Gensler during the Obama years) rather than the SEC. As a result, Gensler’s decisions at the SEC will be quite skewed in the way they hit the original cryptocurrency, but his overall assessment of Bitcoin’s governance shows a refreshing level of knowledge, as well as a clear respect for the principles of decentralization.
“There have been many attempts, all dying, down to Bitcoin, to crack that riddle we were talking about: peer-to-peer money with no central authority,” Gensler said, discussing Satoshi Nakamoto’s original whitepaper with a full. lecture hall. In addition to being simply impressed with Bitcoin’s technological performance and its “monetary policy that restricts the supply of the currency,” he advocated the ability to allow transactions to be free from third parties.
“When you’re dealing with a central authority, a commercial bank, they can decide whether to grant credit or not. That is a form of censorship. It’s a form of assignment, ”said Gensler. “But distributed decentralized platforms are more resistant to censorship
It is almost paradoxical to think of someone so deeply rooted in the traditional centers of financial power. Prior to his career as a regulator, Gensler started in the financial world at Goldman Sachs. He comes from the centers of power, which makes it quite remarkable that he identifies established industry players striving for regulation at the expense of new start-ups:
“One thing that was not mentioned is that institutions sometimes want to be regulated over time because it raises barriers to entry. It is usually not in the early stages. But later on, it raises some barriers to entry, and it is actually the incumbents who often collect economic rents. “
The many costs of mining
Mining is clearly a central feature of Bitcoin’s governance system. It’s also remarkably controversial, with recent estimates saying the Bitcoin network used up more energy than the Netherlands. Indeed, the bad PR of Bitcoin’s electricity usage has a wave of sustainable energy companies to enter the industry. But Gensler took the time of his lecture to defend Bitcoin’s energy consumption against the many overlooked externalities of all the world’s other monetary systems:
“I note that all strong currencies – strong funds – have had something to limit supply for centuries. And so now we do it electronically and through this mining. That doesn’t mean it is the best practice. I’m just saying it’s a different way. Getting gold out of the ground is very difficult. And in the 19th century, large vault doors and guards with guns were one way to ensure this. And you could even say that having central banks comes at a cost. So I see it as a trade-off of how to make a currency more difficult to create. “
Despite his clear sympathy for decentralization, Gensler isn’t exactly optimistic about Bitcoin. “We are not going to be a Bitcoin minimalist or a maximimalist. I am probably, to make it known here myself, a little bit center-minimalist about Bitcoin, ”he tells his class at one point. He later told the class that he didn’t own Bitcoin himself – although, as always, that could be OPSEC.
As for mining, Gensler noted several long-term concerns in addition to energy consumption. One is that they have huge mining pools effectively centralized the system, making a 51% attack more probably then comfortable. Another is that Gensler suspects that the most successful miners are successful based on illegal activities:
“I truly believe – but cannot actually prove – that some of the largest mining pools or miners are in places where they engage in illegal activities. They get their electricity for less than what it really costs on the grid from bad actors. “
Even these issues with the specifics of Bitcoin do not alter the fact that Gensler clearly believes in the importance of decentralization of governance. “I like the democratization of capital markets more,” he says at one point.
So what does all this mean? Gensler is certainly not a crypto-anarchist, and he is certainly not interested in rolling back crypto regulation to where it was in 2018. But his sympathy for decentralizing finance is clearly strong. In his lectures, he is sympathetic to strong protections of transactional privacy and the process of crypto tokens entering their life cycle as centralized projects before becoming decentralized currencies. This is going to be a critical area at the SEC, especially as the fellow commissioner has been aiming for one over the past year safe haven for such projects.