Blockchain technology has the potential to undermine one of the most powerful means of US influence — financial dominance.
A new report from US foreign policy think tank The Foundation for Defense of Democracies (FDD) says adversaries may use blockchain to reduce the threat of U.S. economic sanctions.
The FDD has previously faced criticism for its alarming rhetoric, however, the report presents a convincing narrative. It singles out four nations (under, or at risk of US sanctions), that are already laying the foundations for a new financial infrastructure to operate free from US interference.
“For decades, U.S. adversaries have been trying to evade and undermine this power, but there has been no way to conduct significant international commerce without moving through the pipes of the U.S. dominated global financial system. Now, new pipelines are being built.”
The eclipse of US financial power
Despite Trump’s recent tweet denouncing Bitcoin, the report suggests that it is not a an existing cryptocurrency, but rather public-sector blockchain projects that represent the real threat to US financial control.
Corporate and government blockchains are said to be the “building blocks” of a system that could in “two to three decades” aid financial cooperation between adversarial countries, and have the means to "eclipse U.S. financial power in much the same way that the dollar once eclipsed the British pound.”
Ground zero is identified as Venezuela. The country’s Petro is painted in the report as a government-sponsored scam ICO, complete with hyperbolic promises, that would act as “kryptonite” against the “superman” of the US government. When it launched the Petro, Venezuela promised partnerships with other countries that never came to fruition.
“During 2018, the regime proclaimed numerous times that the Petro would be used to pay for various domestic transactions, such as real estate, airline tickets, and tourism. None of these promises panned out.”
Despite this failure to deliver, the Petro project is seen as a “case study for other regimes”, and it has the potential to give adversaries the ability “to learn what not to do in deploying a blockchain sanctions resistance plan.”
The report suggests that Russia, alleged to have been covertly cheering on Venezuela’s effort against American imperialism, will apply any lessons learned to progress its own plans to erode the power of U.S. sanctions.
Chief among these is the takedown of SWIFT; the international payment channel which has historically given way to US influence. Overthrowing SWIFT with a system that could fly under the radar of western financial institutions would remove this influence and make enforcing US economic sanctions more difficult. This goal has been high on the Russian agenda since 2014 when the US responded to the invasion of Ukraine by blocking the activities of state-owned banks, which pulled the rug out from underneath the Ruble and put the country on the verge of a currency crisis.
Shortly afterward, Russia released a policy paper on global trade and stated that action was needed to “combat the excessive dominance of a limited number of reserve currencies”, including the dollar.
Blockchain, suggests the FDD report, is Russia’s chosen form of action, as evidenced by the foreboding words of a Russian intelligence officer in 2017, who told an international blockchain standards conference “the internet belongs to the Americans — but blockchain will belong to us.”
Iran too has responded to US sanctions with plans for a blockchain-based currency, but it is China, and particularly China’s Central Bank, that represents the real threat looming on the horizon, says the report.
“China is less threatened by U.S. sanctions than other adversaries, but displacing U.S. influence in the global financial system is a national priority. China’s central bank is devoting significant resources and expertise to blockchain research and digital currency development.”
Countering the blockchain resistance suggests the report, would be best achieved by encouraging homegrown initiatives, and furthering the “American Ingenuity” that is responsible for developing projects like Dash, Hyperledger, NEM, and Stellar.
Analyzing threat scenarios, and creating a national strategy for blockchain could also play a part, but the key to protecting American foreign policy it seems, could suddenly now depend on the transparency and freedom enabled by Bitcoin.
“U.S. policymakers and financial sector stakeholders will need to take the lead in the evolving international crypto race. Washington must ensure that if blockchain technology ascends, it develops in a way that will expand the transparency, freedom, and prosperity of the last century.”
Unfortunately, Trump’s negative tweets targeting the crypto asset sector, and the current unfavorable U.S. political environment make this suggestion seem unlikely in the short term. If this week’s Libra hearings are any indication, US policymakers have some catching up to do.