By Yaël Ossowski
Now may be the time for a currency revolution. The United States is dealing with some of the highest inflation in a generation. COVID jitters and government reaction to it are shaking the economy. But state and local policymakers are not powerless to protect their residents from what’s happening.
However, Bitcoin offers an alternative to the monetary manipulation of Washington, D.C.
Bitcoin at the state level
For those of us in the United States with an eye on all things smart policy and finance, El Salvador’s experimentation with Bitcoin as legal tender is proving to be a fascinating experiment. But rather than just watch from abroad, we could also learn from the small Central American country by introducing a Bitcoin agenda in our own institutions.
The main advantage of Bitcoin is that it is based on a decentralized and transparent public ledger that must be verified by thousands of independent nodes, or people keeping tabs on every transaction block. As such, there is no Bitcoin money printer like that which exists for the federal government and the dollar.
In a time of inflation, ballooning government debts, and broader financial uncertainty, a Bitcoin-first policy would be a welcome message.
Miami Mayor Francis Suarez has so far been one of the most prominent public officials in favor of Bitcoin. He has pledged to make Miami a “Bitcoin City” and already receives 100% of his paycheck in bitcoin. Recently, he has also joined forces with Scott Conger, mayor of Jackson City, Tennessee, on finding an option for city workers to accept their pay and retirement benefits in cryptocurrencies as well. Finding ways to integrate crypto payments into the city financial system will also be the next step.
For his part, Florida Governor Ron DeSantis has perhaps made the boldest move of all, including cryptocurrency payment of state fees as a multi-department pilot project in his 2022 budget.
If East Coast mayors and governors can hop on the Bitcoin train, why not legislators and public officials in the Gem State?
At the state level, lawmakers could pass legislation allowing state treasurers to hold bitcoin on the state’s balance sheet. That authorization could also allow local governments to follow suit. Beyond holding bitcoin on government balance sheets, lawmakers could examine other ways of welcoming the Bitcoin mining economy. Some states, for example, already provide a sales tax exemption for data mining centers. That exemption could be broadened to allow Bitcoin miners to benefit in every state. States would also do well to jettison the components of the tax exemption intended to exclusively benefit big businesses.
As Jesse Colzani has pointed out, rural areas of the world with low energy costs have the biggest advantage in hosting Bitcoin miners — the process of unlocking new blocks of Bitcoin by using computing hash power to solve complex algorithms.
Mining only needs a reliable connection to the internet, cooling warehouses, and access to stable power, and they could be a dominant industry in Idaho’s financial landscape. It would increase investment in facilities, jobs, and help return dividends to local and state coffers.
By making it easier for Bitcoin miners to relocate, it could help spur a new energy revolution that would dwarf that of hydroelectricity or natural gas.
Entrepreneurship in the digital asset economy
With that in mind, inviting entrepreneurs from the Bitcoin community into Idaho would be a triumph for the state’s economy.
At present, some states offer financial service companies easy access to the state via the Nationwide Multistate Licensing System & Registry. For Bitcoin specifically, this means registered brokers, or “money transmitters”, can apply for money licenses in multiple states that are honored in others. That is a great first step, but it should be even easier.
By offering full reciprocity of money transmitter licenses, any state could ensure that Bitcoin firms from New York, Florida, or California could easily set up shop without hassle in a big city or small town alike. This would be similar to the reciprocity of occupational licenses, which could reduce barriers to work and make it easier for qualified individuals to work in their field once they move here.
Lowering the amount that financial companies need in net worth to gain these licenses could also be a boon to states’ finances. And it’s not just in the license requirements.
What makes so many cryptocurrencies interesting is they are a decentralized and independent monetary protocol that cannot be controlled by any single entity. While that may not be true of other cryptocurrencies (Ethereum, Solana, Stablecoins, etc.), Bitcoin is special in this regard. It relies on individuals running full nodes to validate transactions and keep the network strong.
That said, because so many innovations are happening on various layers of the Bitcoin chain, including almost fee-free payments on the layer-2 solution known as “lightning”, as well as other digital assets, it would be important for state laws to keep the definition of “crypto” as broad as possible. This way, it would continue to provide guardrails for innovation and ensure that fraudulent actors and firms are held accountable.
The quick-moving technology of the crypto space is numbing at times, but the role of government is to set clear and easy guidelines for entrepreneurs and citizens.
The politics of sound money
By opening itself to Bitcoin and the broader cryptocurrency space, states like Texas, North Carolina, or Idaho would have an advantage over the highly regulated financial markets that are mostly based in New York, California, and Florida. Low taxes, coupled with a light-touch regulatory environment and openness to entrepreneurship, would be key to this evolution.
While there are vast philosophical questions invoked by the role of digital assets, the advantage of giving more choice to state residents cannot be overstated with the federal government’s power to mint paper money backed by nothing.
By instituting pilot projects to let citizens offer bitcoin as payment for state fees, giving crypto options for state employees and contractors, and easing the regulatory burdens faced by crypto entrepreneurs, states have the opportunity to ensure their residents are ready for the digital age.
It will only take a small amount of change in order to make it last.
Yaël Ossowski is deputy director at the Consumer Choice Center, a consumer advocacy group based in the United States, and a co-author of the Principles of Smart Crypto Regulation policy primer.