What would Alexander Hamilton, the first Secretary of the U.S. Treasury, think about Bitcoin? Last week I visited the Virgin Islands, sailing past Nevis where he was born, and pondered this question. The current Secretary of the Treasury, Janet Yellen, has said that she has concerns about cryptocurrencies, yet also sees benefits. The Chairman of the Securities and Exchange Commission, Gary Gensler, teaches a course on Blockchain and Money at MIT, and is an advocate. The role of the Treasury is to issue money, oversee tax payments, supervise banks, and manage the finances of the government. The role of the Securities and Exchange Commission is to oversee the raising of money and issuance of securities. Regulators are struggling with cryptocurrency and how to define it, and thus how to regulate it.
Currency by definition is a unit of account, store of value, and medium of exchange. In order to be an effective medium of exchange a currency should be stable, unlike Bitcoin which has been extremely volatile. Securities, on the other hand, are issued by public and private entities and typically trade on centralized exchanges. As of 2014, the IRS has stated that capital gains taxation applies to what they refer to as “virtual currency,” or cryptocurrency, supporting it being a security.
Hamilton believed that ownership and economic safety were requisites to liberty, and spearheaded the birth of central banking and the issuance of currency. In 1790, he launched the Revenue Cutter Service, which ultimately became the Coast Guard, to protect the public against “breaches of the Revenue laws.” You could say that centralization is about not just control, but also protection. Bitcoin is decentralized, and proponents value privacy and rail against centralization and governmental control. Centralization provides protection – if my Visa card is lost and used by someone else, I am not responsible for those purchases. But if a Bitcoin holder lose a private key for their wallet, their tokens are lost forever and they have no recourse. Hamilton was very aware of the delicate balance between control and protection. He stated in his instructions to the Cutter Officers: “(our) countrymen are freemen, and, as such, are impatient of everything that bears the least mark of a domineering spirit.”
Hamilton was an innovator, so if he were alive today, might be a proponent of Bitcoin. But if he were sailing on a Revenue Cutter today, I am confident he would be on the lookout for pirates smuggling square groupers in exchange for Bitcoin – “keeping a careful eye upon the motions of coasting vessels, without, however, interrupting or embarrassing them unless where some strong ground of suspicion requires that they should be visited and examined.” And he would reiterate cautious words about the important balance between control and protection.
Sources: CNBC, yahoo! finance, IRS, Hamilton First Report on the Public Credit and Letter to Revenue Cutter Officers, June 4th, 1791