SEC and Cryptocurrency — An Open Letter to Commissioner Peirce

Dear Ms. Peirce,

You have recently gained a profile as an advocate and presumed authority on cryptocurrencies and blockchain. I am writing you to point you to information that I would hope you take as input to your views on liberalizing regulations or encouraging use of cryptocurrencies. The issue of a “digital dollar” is an entirely different issue. I stridently oppose the former and support the latter.

My most recent experience in the space comes from having formed a company in 2017 to build a scalable decentralized distributed ledger platform with Chinese colleagues I met here in Pasadena, CA. Key to my current views was the speech on 24-October-2019 by Xi Jinping and what followed. The speech by Xi was an announcement that China needed to dominate the blockchain space. At the time, I was just month back in the USA after several weeks in China and Indonesia working on business and technical strategy for our platform and giving presentations to partners and investors. As many reacted at the time (including the prices of all cryptocurrencies) there was elation. And then came the hammer, as they say.

China moved to finish outlawing all buying/selling/trading of cryptocurrencies along with possessing an account on any crypto-exchange and outlawing operating one on Chinese soil. But what didn’t change and even grew was China remaining the largest producer (“miner”) of cryptocurrencies and the required technology and infrastructure.

And then came the further change that mandated for all blockchain and DDL platforms to move onto the BNS, a government run network that permitted thorough monitoring and control of all projects. This was also accompanied with a push to have them all relocate operations to Hainan. As a foreign CEO, I would also be required to relocate my prime residence to Hainan if I wanted to remain in my role. I separated at that point and began my research into the space as a skeptic.

I have written a great deal on the subject since. Prior to my ventures here on the west coast, I worked the better part of my technical career on Wall Street. I have therefore also documented the serious shortcomings of blockchain as a technology and the proliferation of attempts (including my own) to make it scale.

In my first couple pieces, I was more interested in the predominance (in the west) of the Libertarian attraction to crypto. I was struck by how that viewpoint ignored China, Russia, etc. and the implications for the western liberal democratic order and financial infrastructure. As I dug deeper into the facts and trends related to cryptocurrencies I focused on China because most advocates were either ignorant of its dominance of PoW infrastructure or seemed to willfully avoid the subject.

And here we are. There are billions of dollars at stake and, as the New York Times today (19-April-2021) in its business section has an article entitled “Another Sign of a Maturing Sector: It’s Minting Lobbyists”.

I am a fairly lonely voice, unless you take Peter Thiel’s sotto voce remark that Bitcoin might be “a Chinese Financial Weapon”. But I would nevertheless ask you to think long and hard about the legal embrace of current Proof-of-Work crypto-currencies. The Communist Party of China can disrupt the western liberal democratic financial world with little impact to its economy and almost virtually with a flip of a switch. And it is not the least unclear about its objective to create a Chinese parallel to the dollar reserve system.

Best regards, Joseph Sadove