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Awesome read. Loved this. My thoughts: If decentralized countries, with diasporic peoples, offer enough to centralized countries where some citizens of their nation reside, decentralized will be able to leverage financial systems in their favor. If not, it would be X centralized govt interests vs. decentralized govt interest AND corp interests that prefer the decentralized finance system. That changes the game theory of whether a centralized country outlawed or mandates payments their own reserve currency. So I think we will get closer to this anarchy scenario than you think, and sooner.

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Dec 14, 2021Liked by Noah Smith

Nice post. I wonder: what about capital markets?

The 1998 Asian crises were partly about a whole lot of dollars flowing out even faster than they flowed in. Should we expect some country next decade to hit a "crypto financial crisis," where they attract a lot of crypto investment and then face sudden capital flight?

Maybe a crypto hot-money crisis world work the same as in regular currencies. But capital controls, for example, could be much harder to impose in an emergency on crypto-denominated investments: they don't need banks to move money.

Likewise, a crypto-normalized world should make it much easier for Iran or China or North Korea to get around sanctions. Unless the OECD start regulating crypto transactions, of course, but you could imagine a decade of gap between the problem and the regulations to fix it.

Are there other differences we could expect?

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Dec 14, 2021Liked by Noah Smith

"defiance (defi-ance?)"

"defiance (defi-ance?)"

"defiance (defi-ance?)"

"defiance (defi-ance?)"

There is going to be a block(chain)buster this decade called "Defiance" I will bet crypto on this.

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I’m not so sure that maintaining financial control in the face of cryptocurrencies will be as easy for states as you think. While it’s true that governments have a monopoly on violence, when it comes to financial regulation, developed countries tend to wear a pretty thick silk glove over the fist of state violence so that the violence is out of sight and mind for the average citizen.

Rather than demand everyone writes it a biweekly check, the IRS gets businesses to withhold income from their employees’ paychecks. Rather than arresting individuals for trying to send remittances to sanctioned countries, the government makes that difficult to do by regulating the payment processors that used to be necessary to send money overseas. Rather than demand everyone send their financial records and list of assets to help it track money laundering and tax evasion, the government deputizes the financial institutions currently necessary for anyone to transact electronically.

The government has only managed to manufacture consent for it’s steadily increasing control because so far, technology has cooperated in making its intrusions into our lives less and less obtrusive. Crypto has the potential to change that dynamic.

China is using increasingly draconian measures to crush crypto on its soil because they’ve found the silk glove of regulating large institutions inadequate. Unless crypto becomes more centralized in the same way big tech did, I think developed governments are going to have to choose between giving up control over a significant portion of their financial systems or taking off the gloves and attempting to become more like China in this space.

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The global economy works the way it does as the result of tensions between deregulation and regulation, rather than intense mystery. Too much regulation scares money away, and too little risks runaway speculation/fraud. Crypto is deeply in the "no regulation" zone, and looks extremely dangerous to me if it becomes a significant part of international money flows. Bitcoin is a "proof-of-concept" for a particular problem (making a currency work with no central control), but it has not solved the problems of how to make wallets safe (other than the Winklevoss strategy of printing their key on two sheets of paper stored in separate vaults--not very conducive to using it), how to make fees reasonable (using bitcoin costs around $50 per transaction, about the price of a wire transfer), and how to get rid of the scams (ahem, every known Bitcoin exchange has ALWAYS turned out to be a scam at the end). Bitcoin continues the financial system's strategy of pushing complex solutions to simple problems that the buyers do not understand. If crypto becomes big enough to be powerful, it will have to be regulated to avoid a financial collapse. How many times do we need to rediscover "bank runs"?

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All reasonable… except the US doesn’t have an insurmountable lead oil terms of military power.

Between cyber and moores/wrights law applied to drones, the predictable inaction in Ukraine and Taiwan when confronted with a likely military defeat… any military supremacy is rapidly declining, which sure seems to lean towards Srinivasan and Khanna’s predicted end state.

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