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Crypto Isn't Just Money – It's a Defense Against Discrimination

Sonya Mann works in communications and marketing at the Zcash Foundation, a financial privacy non-profit. She is a former technology journalist.


For Americans, it can be easy to discount the social relevance of censorship-resistant digital assets like bitcoin.

Unlike people living under authoritarian regimes, we are free to enter into commercial transactions how and when we like, right?

Well, not always.

Many Americans find themselves unable to access the financial system for political reasons. It’s a frustrating experience that cuts across ideological lines. Common targets of financial exclusion include sex workers (regardless of whether their work is legal), drug users and — oddly enough — gun rights organizations.

New York vs. the NRA

For a recent example, look to the National Rifle Association and its run-in with New York State.

Although the NRA is a controversial organization, prone to selective advocacy and partisan rhetoric, the group’s activities are indisputably legal. Freedom entails being able to say and do controversial things, especially when those things are explicitly protected by the Constitution.

The NRA’s mission is to protect and promote Americans’ right to keep and bear firearms. The organization likes to bill itself as the oldest civil rights advocacy group in the country. So, readers may be surprised that the NRA claims to have struggled to access financial services. In May, the non-profit decided to sue governor Andrew Cuomo and the state’s Department of Financial Services.

“The NRA presented as evidence an April letter from Maria Vullo, the DFS’s superintendent, warning banks under her purview about the ‘reputational risk’ of doing business with gun-rights groups,” according to National Review. “The state also pressured the companies behind the scenes, the group claims.”

If these allegations are accurate, it’s an echo of the Obama administration’s Operation Choke Point, in which the government put pressure on banks to stop enabling legal but disapproved-of businesses. In 2014, the US House of Representatives’ Committee on Oversight and Government Reform found that the initiative was intended “to deny [certain] merchants access to the banking and payments networks that every business needs to survive.”

The committee’s report noted that “bank regulators labeled a wide range of lawful merchants as ‘high-risk’ — including coin dealers, firearms and ammunition sales, and short-term lending.” Thereby, “Operation Choke Point effectively transformed this guidance into an implicit threat of a federal investigation.” The effort was deemed an illegal abuse of power by the Department of Justice, and eventually shut down.

Yet even upstream of payment processing, e-commerce platforms like Shopify are kicking off gun-related merchants. “We have invested more than $100,000 in the development of our Shopify store, which will disappear once these policies go into effect,” said Cole Leleux, the general manager of firearms dealer Spike’s Tactical, in an interview with the Daily Wire. A platform like OpenBazaar not only wouldn’t do that, it wouldn’t be able to, because the marketplace is designed to prevent top-down censorship.

When it comes to reputational risk, many banks would be wary of serving someone like dissident gunsmith Cody Wilson, whose projects include publishing free weapons schematics and selling machines for the home manufacture of firearms. His activities are legal, and in fact, litigation comprises much of his activism. But Wilson is a radical, and finance firms tend to eschew radicalism. (That is a problem in-and-of-itself, but we’ll leave it aside for now.)

By contrast, the NRA is a longtime figure of the establishment. It doesn’t just work within the system; the NRA is the system. It has close ties to politicians and firearm manufacturers alike. Whether or not you like guns or the Second Amendment, it should be alarming when a legacy institution as entrenched as the NRA is turned away by financial service providers, especially as a result of state pressure.

That financial discrimination shows just how precarious Americans’ rights are in actual practice. What if a financial regulator decided that the ACLU’s First Amendment advocacy was distasteful, and jeopardized the group’s ability to accept donations?

The point is not that every bank should be forced to work with the NRA. For some banks, refraining from doing business with the NRA may make commercial sense. If the reputational risk, or cost of monitoring compliance, outweighs the revenue that a financial services company can garner from a controversial client, it’s a rational business decision to drop that client.

An imperfect solution

However, the NRA’s case demonstrates the critical need for permissionless financial infrastructure. A truly open financial system would mitigate the state pressure brought to bear against private organizations that advocate for Americans’ constitutional rights. It would also protect provocateurs like Cody Wilson, who may pose a legitimate threat to the PR and marketing needs of a traditional, centralized bank.

Cryptocurrency is the solution to financial exclusion — if an imperfect one at present. Anyone in the space knows that the promise of a robust parallel system has yet to be fulfilled. Usability and adoption remain low. Bitcoin privacy is far from perfect (although it is steadily evolving, and alternate options like zcash and monero are available). The tax and regulatory environments remain intimidating, which is a huge problem for merchants.

And yet, despite all those caveats, cryptocurrency continues to hold the promise of financial freedom. The cypherpunk approach is not to rely on the government upholding the Bill of Rights, but to write code that will guarantee those liberties cannot be taken away. Cryptocurrencies that are trustless and distributed already provide an incredible advantage: You can exchange value, even across great distances, without having to do a song and dance for a gatekeeper.

In this bear market, it’s important to remember the revelatory nature of Satoshi Nakamoto’s innovation. Freedom entails being able to say and do controversial things — and when it’s true freedom, you don’t have to beg for permission first.

The author thanks Andrew Glidden, Preston Byrne, Jon Stokes and Robert Mariani for reviewing an early draft of this article.

U.S. Constitution image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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NYDFS Chief Defends State Regulator's Crypto Approach

New York Department of Financial Services superintendent Maria Vullo defended her office’s approach to regulating cryptocurrencies on Thursday.

Speaking at the Center for Foreign Relation’s “Legal Tender? The Regulation of Cryptocurrencies” panel in New York on Wednesday, Vullo said that her view is “regulation in this space, just like any space where you have money transmission, [is necessary],” making a point she often revisited during the discussion.

While some state and federal regulars are taking time to create rules for the industry, “it certainly hasn’t taken New York long to establish a framework” for regulating cryptocurrencies, Vullo said in her opening statement, referring to the state’s controversial BitLicense.

The role of regulation in the cryptocurrency space was a contentious topic, with Blockchain president and chief legal officer Marco Santori claiming regulators should ease up on the over-regulation.

That said, he did acknowledge that “a lot of token sales run afoul of the spirit of the law, if not the letter of the law. But we have to be careful not to lump them all together.”

In particular, he argued that New York’s laws “have been an abject failure.”

However, Vullo derided developers who claim that their work should allow them to launch token sales free of disclosure or other requirements, saying:

“I think regulators absolutely need to be in the space, I know they’re saying ‘we’re innovative, we’re startups, we need to be left alone and put in a sandbox.’ Toddlers play in the sandbox. Adults play by the rules.”

In another rapid exchange, CNN investigative journalist and panelist Jose Pagliery expressed concern about the idea that “code is law,” saying that while this may be true, coders can modify certain protocols:

“If you’re the executive at a bank, you have people to answer to … if you’re one of a dozen coders around the world whose name no one knows and you’re the one at the controls changing how this cryptocurrency works … we have to figure out how these people are held accountable.”

Santori disagreed with this premise, saying “that is not only a bad question, you should feel bad for asking it.”

In turn, Vullo said: “I didn’t know this was about feelings.”

Seema Mody, Jose Pagliery, Marco Santori and Maria Vullo image by Nikhilesh De for CoinDesk

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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NY Regulator Argues BitLicense Regulation Boosted Businesses

The New York State Department of Financial Services (NYDFS) is taking steps to defend its much-contested track record as an early regulator of cryptocurrency.

In remarks at this year’s Conference of State Bank Supervisors Tuesday, NYDFS superintendent Maria Vullo discussed the agency’s efforts to police the cryptocurrency space, touting the state’s technology-specific licensing regime, the BitLicense, as an example of how her agency has contributed to the maturation of the industry.

Because the agency’s role is to protect consumers, cryptocurrencies needed to be regulated, and these regulations, she argued, have benefited the space.

She told attendees:

“The regulatory structure that we created for virtual currency has helped our licensed companies attract greater interest from customers, investors, and potential financial services partners seeking to pursue further innovation, while protecting market integrity by stringent standards applicable to all law-abiding business enterprises.”

Vullo said her agency held public hearings in early 2014, before she took over the top job, as “the problems at Mt. Gox – then handling 70 percent of Bitcoin exchanges – continued to spiral out of control.” The regulator drafted rules governing virtual currency businesses and finalized the BitLicense in 2015.

The regulation helped “insure that the competition among new entrants is not a race to the bottom.” She again cited the example of Mt. Gox, where “fatal flaws” caused investors to lose hundreds of millions of dollars worth of bitcoin – now billions, due to the higher exchange rate.

Vullo emphasized the agency’s focus on consumer welfare and industry compliance, saying:

“DFS and the states have helped set the standards through our application and examination processes to ensure that customer protection is taken seriously, and cybersecurity and [anti-money laundering] standards are respected.”

Vullo did not address criticism of the BitLicense, which many in the industry see as imposing sweeping, onerous requirements. Only a handful of companies have obtained the license, and New York State assemblyman Ron Kim submitted a bill in February to replace the framework. The bill remains in committee.

Kim told CoinDesk last month that “one person, the superintendent from one state government agency, has way too much power over the current regulations, without any oversight.”

The Department of Financial Services did not immediately respond to a request for comment.

Manhattan image via Shutterstock.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.