The blockchain and the whitechain
"There is one centralized whitelist of registered addresses."
The libertarian dream of crypto isn’t dead yet—but we can see its death from here. Crypto is still a revolution. But it is a financial revolution, not a political revolution. Any political revolution will have to be a consequence of the financial revolution—and there is no certainty in any such revolution.
The path to the whitechain
The future belongs to whitelists—or “allowlists” for our brilliant new century. A whitelist is a list of registered, or white, addresses. A whitechain is a blockchain in which sending tokens to an unregistered address either destroys or refunds them. There is one centralized whitelist of registered addresses.
Naturally, a legitimate address is matched to a legitimate account at a legitimate bank. Money laundering on the whitechain is as hard as money laundering with a bank account. If a token has ever left the whitechain and passed through a nonwhite address, it cannot be traded in any way by any legitimate exchange—it is just dead.
The larval state is the graychain, in which a centralized “denylist” lists “bad” wallets. For example, DoJ or Treasury could be posting a continuously updated list of blocked addresses, believed to belong to Russian oligarchs or whoever. Any traffic with these addresses would be traced by all legitimate exchanges and bar any sale or redemption.
It is surprising that the graychain does not already exist, forcing exchanges to check a live USG-certified blacklist before trading any tokens. But once there is a blacklist, the leap to a whitelist is just a matter of data—banks need to submit the addresses for all of their crypto-savvy customers. It can be uploaded on reels of tape, or something. If you have an outside wallet, send a form to the government.
When a sufficiently powerful financial hegemon regulates the blockchain this way, first excommunicating a positive set of bad actors with a blacklist, then all those who refuse to take communion (get their crypto into a registered account) with a whitelist. Of course, those who fear the spotlight of the confessional are likely to be bad actors…
Soon, the wilds are tamed. Black crypto still exists—but it is effectively a different currency. And a much cheaper currency, since its paths to fiat are winding at best. They may be nonexistent, in which black crypto is possibly worthless. Privacy coins still exist—they can be treated like black crypto, ie, trivially murdered by regulation. No legitimate exchange can trade either fiat or white crypto for them.
At this point, it seems as if crypto has been neutered. It has not been neutered at all. Rather, it has snuck inside the walls—discarding its irritant qualities.
Who cares about money laundering? Who cares about yield farming? Not Jesus. Did Jesus drive the hodlers out of the temple? Or the flash-loan peddlers, the algorithmic stablecoins, the degen rug-pullers? To ask the question is to answer it.
It is a pity that the Au and Ag of crypto could not turn themselves into privacy coins, creating a winning monetary contender that also mathematically defied the state. Why do the powers that be keep getting lucky? To test our hearts, I suppose.
But once the state gets to know the classic blockchain, the state likes it quite a bit. The blockchain is a kind of technical perfection of the official record that lies at the heart of every civilized state. The earliest histories are mere king-lists—ie, records of transactions in sovereignty.
This attraction is a fatal one—because crypto is a more attractive currency than state equity. Namely, it is harder. Regulating it legitimizes it and makes it more dangerous.
The next stage
Crypto—ideally one standard crypto, for there can be only one—then concentrates on its new mission: increasing the pool of savings stored in the new monetary standard, and unifying competing pools of savings. (It is certainly not technically unimaginable to envision a financial merger, a pooling of interests, between Bitcoin and Ethereum—though it would require both to exhibit unprecedented strategic governance capacity.)
In an environment of financial deflation, such as the Federal Reserve in their great wisdom has in the spring of 2022 created by raising the price of money—the interest rate—above the historical pittance that yet already poisons our pneumonic economy, the prices of all assets valued by their direct or imputed yield itself plummets. This gives everyone an incentive to sell them for cash.
But is crypto like cash? Or is it the ultimate momentum-driven risk asset? It is both—it is either.