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Why Ex-SEC Official John Reed Stark Is Wrong About Crypto

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In earlier eras, town criers would announce the latest news, a royal decree or warn the population of some threat. These figures were especially important at times of low literacy rates in society, where they could transmit, through common spoken language, the most vital announcements.

Something analogous exists today with social media replacing the public square, allowing any digital citizen to warn the netizens of this opportunity or that calamity. Our world has become considerably more complicated and technologically complex, and we now rely on modern town criers to help us understand a world filled with competing opinions.

Crypto is no different, and a recent deep-dive Twitter thread by former Securities and Exchange Commission (SEC) official John Reed Stark fits the pattern. His recent thread reviewing the “design language” of the “crypto-Ponzi” scheme is a good example of thoughtful criticism focused on how we talk about crypto.

One of the biggest criticisms of crypto is that it has not fulfilled its promises of increasing financial inclusivity, especially among groups that have historically had limited access to traditional financial services. Stark, who is now president of John Reed Stark Consulting LLC, makes this point, and further accuses the entire crypto industry of orchestrating a malicious effort to capture these disaffected groups and extract fees from people who don’t know any better.

While it is certainly true that crypto has hardly improved financial inclusion, it would be shortsighted to accept the status quo and disregard the potential of building financial infrastructure accessible via the internet.

The question is at least worth exploring, given the human prosperity tech has unlocked. Can crypto do the same for financial services as the internet and smartphones did to provide access to information and knowledge. If one believes that crypto cannot, then what can?

According to the World Bank, there are roughly 1.4 billion “unbanked” people around the world. Of those 1.4 billion, 1.1 billion have access to an internet-connected phone. Would critics write off crypto completely, asserting without doubt that it has no part to play in bringing financial services – a prerequisite to wealth creation – to those billion people?

Is it possible to be at once disappointed that crypto has not yet made those hoped-for gains while also remaining open-minded to the possibility it is the only extant potential solution to this civilizational-level problem?

Stark also decries crypto’s promises to “restore freedom and liberty” to oppressed people around the world. In fact, as the past several years have shown, one of the primary use cases for crypto is to move capital out of repressive countries, such as Russia, Venezuela and China. Ukraine’s minister of digital transformation has said crypto is invaluable for the country’s wartime logistical needs.

For those reasons alone, we should support the development of crypto services that provide increased autonomy for citizens that cannot rely on stable institutions and fair government in their own countries.

One of Stark’s final points is a familiar one: Crypto gives criminals the best chance to steal from other people and abscond with their ill-gotten gains. This doesn’t accurately reflect the evidence, and one cannot compare the prevalence of illicit financial activity in crypto and in the traditional financial system because it is nearly impossible to even estimate the level of illicit activity in comparatively opaque TradFi.

Any amount of fraud, theft or other financial crime in crypto is unacceptable, but overstating the prevalence of illicit activity will not lead to sound policies that promise to combat illicit activity in crypto. Indeed, Treasury Secretary Janet Yellen testified in April 2022, “It’s harder on a large scale for an economy to actually use crypto to evade sanctions.”

Counter to crypto’s mainstream reputation as a comfortable haven for cyber criminals, the U.S. Department of Justice has become quite adept at disrupting this sort of illicit activity because of blockchain’s unique attributes. According to Chainalysis, illicit activity, as a percentage of all crypto transactions, reached an all-time low in 2022.

Most importantly, we must never conflate an individual’s desire for privacy with illicit intent. There are countless legitimate reasons to protect one’s privacy apart from a desire to commit a crime without consequence. Indeed, this concept is a foundational element of our social contract and system of governance, and it deserves reassertion now more than ever before.

Without doubt, crypto needs critical town criers. But we shouldn’t wholly write off a technology that has real promise, nor should we pass harsh judgment on users and developers for not yet fulfilling the aspirations of this new technology – aspirations that include solving some of our most intractable, costly and long-standing societal problems.

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