It was snowing in Ottawa in February. A thin layer of white powder veiled the pavements and gentle flurries drifted down from the grey sheets of cloud covering the sky.
People’s breath misted as they spoke, noses reddened by the cold. In Parliament square, hundreds of truck drivers and pedestrians blockaded the streets. The air was thick with amplified voices and blaring horns. Stark yellow police vests snaked through clusters of people, as officers of the Royal Canadian Mounted Police issued tickets and tried to disperse the protesters.
The truckers were part of a national wave of protests that hoped to disrupt the key trade routes between Canada and the USA. CBC estimated that the protest had generated losses of between $3bn and $6bn. The politics of the protests were complex and worth examining in detail. However, this piece does not take a view on the politics themselves.
6 Billion Dollars is a lot of money
In response to the protests, the Canadian government implemented emergency powers. These powers were supposedly reserved for wartime, and they enabled the police to make mass arrests and freeze bank accounts of protesters, and anyone helping to support them. The emergency powers meant that the police could do these things without a warrant, a court order or due process.
Whatever your politics, this should be a problem for both sides of the political aisle.
For right-wing and conservative thinkers, the Canadian government’s actions demonstrate a direct seizure of private property.
For left-wing and liberal thinkers, the problem comes from the general assault on the freedom of people to protest and the basic human right to access their finances.
As this situation has unfolded, it has created a wider discussion about the nature of the relationship between banks and governments. Blockchain technology and cryptocurrencies are seen by some to offer new, modern and more liberal ways to manage and secure your finances.
So the government can just take my money?
Yes. The reason that governments have the power to unilaterally freeze bank accounts is that those accounts are held by a bank. This is a centralised organisation, which means it has a hierarchy with a chairman, a CEO, a board of directors, partners, shareholders, regulators and governments. All of them have a unilateral say in what happens to your money.
People put money into a bank to keep it safe. The caveat to this is that, when you sign up, you also agree to the bank’s terms and conditions, which allow them unprecedented control over the funds that you put in.
I don’t want people to take my money
This is where cryptocurrency can change things. Thanks to blockchain technology, there are now new forms of finance that move away from this traditional centralised model.
Decentralised financial models remove the single point of control. In these models, the community shares control, meaning that no one person can make changes to the accounts or funds that are stored there, unless there is a consensus.
Different protocols can make changes in different ways, for example in some cases, the community can vote on changes. If the majority votes yes, then changes can be made. Some of these are opt-in, and some are opt-out.
Whichever the model, the overarching concept is that your funds cannot be unilaterally frozen by despotic states or leaders with a tyrannical swagger.
Pros and cons
There are naturally pros and cons to this model which are worthy of discussion:
Cons
- There is no protection in a decentralised model. Because of the lack of centralisation, there are no buffers, insurance or second chances if you forget your account details or if you get hacked or scammed. And it can be hacked.
- There are avenues for dirty money. These exist in centralised formats too (just consider the recent revelations about Credit Suisse who have endured a flurry of criticism, fines and criminal cases over the last few decades with links to drug cartels and oligarchs), but they are arguably more accessible via DeFi. At the beginning of the Ukrainian-Russo war in 2022, Russia was hit with unprecedented sanctions. Overnight, there was a cryptocurrency boom. Some suggest this was due to billions of Oligarch assets moving out of the plummeting Rouble, into crypto assets, which were more stable at the time.
- It’s complicated to use. There are no smiling bank managers and marketing approved brochures to guide you through the world of DeFi and crypto. There are however plenty of YouTube videos. But needless to say, using the tools effectively requires time and effort. The cost of making a mistake can be significant.
- It’s soon to be regulated. For example, in the UK, HMRC is taking steps to aggressively tax crypto assets while other governments ban their use entirely. Part of the reason for this is that crypto in the form described, removes a degree of governmental power – the state cannot tax and seize assets as easily as they can when everything is centralised and highly regulated. For institutions that are used to high levels of unilateral control, financial freedom can be seen as a serious problem.
Pros
- A decentralised model of finance brings a democratic process to changes that could impact your money. This does not happen in any real capacity in traditional banks, despite the invitations you may sometimes get to a bank’s Annual General Meeting.
- It’s very difficult to freeze accounts in many of the truly decentralised cryptosystems without the consent of the community. This means that there is a much smaller scope for bad actors to target individuals using the system, in contrast to the way that despotic states can target individual bank accounts.
- There are greater and fairer opportunities to profit versus traditional stock markets as, theoretically, the members of the Defi community operate on a level playing field. This is in contrast to the stock market in which current trading practices create a disproportionate advantage for specific individuals, large hedge funds and politicians. For example, there is a new trading fund that follows all the trades made by 81-year-old Congresswoman Nancy Pelosi. It’s currently tracking at over 33.69% profit this year compared to other popular funds available to the public (at the time of writing, the NASDAQ is up 1.90% and the S&P 500 is up 12.5%).
As a point of interest, the emergency powers in Canada were rescinded after 3 weeks (following the crackdown and opening back up of trade routes) . However, the financial component still remains, with the Canadian government citing that the powers to freeze assets without a court order are essential “tools” designed to “protect” people. At the time of writing, some of the bank accounts frozen under the act remain in limbo, their owners presumably relying on cash or charity to get by.
There are risks associated with trading and purchasing crypto and the information above is for entertainment only and does not constitute financial advice.
Smarticles 