Рецензия · 7. Почему централизация — это проблема, а криптовалюты — решение

7. Why Centralisation Is the Problem, and Crypto Is the Solution

7.1 Preliminaries

On 6 December 2023, JP Morgan Chase’s chief executive officer, Jamie Dimon, testified before the United States Congress, saying that crypto was a tool for ‘criminals, drug traffickers [. . .] money laundering, tax avoidance’, adding, ‘if I were the government, I’d close it down.’¹ The irony is that just a few weeks after Dimon’s congressional testimony, JP Morgan Chase was fined $348 million for ‘inadequate trade reporting’.² This was just the most recent fine in a string of enforcement actions taken against the world’s largest bank by market capitalisation, including a fine of $920 million in 2020 for participating in fraudulent schemes involving precious metals and US Treasury bills.³ That fine, in turn, followed over eighty regulatory fines against JP Morgan Chase for banking violations and other crimes dating back to 2003, with a total amount paid of over $39 billion.⁴

Of course, these were just the cases in which JP Morgan was caught and punished. In other examples, the multinational finance company avoided penalty thanks to important records ‘accidentally’ disappearing. In June 2023, the SEC was forced to file a cease-and-desist order against JP Morgan after it had deleted 47 million electronic communications. As the SEC complained in its filing, ‘In at least twelve civil securities-related regulatory investigations, eight of which were conducted by the Commission staff, JP Morgan received subpoenas and document requests for communications which could not be retrieved or produced because they had been deleted permanently.’⁵

The problem is that fraudulent activity by JP Morgan Chase is merely the tip of the iceberg in the global financial system; it has not been an outlier. As we will see, banks all over the world are implicated in the same activities. It is not by accident, after all, that global banks have large offices in locations like Medellin, Colombia, and every other drug capital in Latin America.

However, banks are not the only bad actors when it comes to shady economic dealings. The problem actors include any centralised authority with control over money. The corrupt agents are not just banks and businesses but governments themselves. Sometimes, local governments are the bad actors, and sometimes, nation states are. If money passes through a centralised and non-transparent organisation, then that organisation is most likely a target for corruption and a particularly apt agent for what are known as ‘illicit financial flows’, or IFFs.

For example, many people know that the drug cartels impose a tax on businesses in many parts of Mexico – extortion, by another name. What people do not know is that these taxes are often paid directly to local municipalities as fees that are passed on directly to the cartels.⁶ In other words, local governments have been captured by the cartels. Control of local governments is an ideal strategy for cartels because they can carry on the business of laundering money behind closed doors. In this and other ways, centralised authorities are ripe targets for those that traffic in IFFs – centralised governance is the best friend of criminals.

As we recounted in this book’s Introduction the twentieth-century American bank robber Willie Sutton was once famously asked why he robbed banks, and he replied, ‘Because that’s where the money is.’ However, that statement is no longer true. Some money can be found in banks, to be sure, and even more money is to be found in deals that banks are involved in and the transactions that they engage in, but as we will see, an even greater pile of money can be found flowing through governmental and nongovernmental organisations around the world. These are the places where twenty-first-century Willie Suttons operate because that is now ‘where the money is’.

As we will see, fraudulent activity today takes numerous forms worldwide. There are many kinds of IFFs and many ways of hiding those IFFs behind the curtains of centralised governance. There is a staggering amount of dark money in the world, and once that dark money finds its way behind the closed doors of banks, governments and other centralised authorities, corruption is inevitable.

Our thesis in this chapter goes against what Jamie Dimon has said (and what mainstream media has repeated unreflectively): cryptocurrencies are not the cause of the problem. On the contrary, we believe that crypto is the only available solution to the problem. It is the only answer to what has become a worldwide blight of governmental and corporate corruption.

Crypto can be a problem solver here by making business and government transactions transparent and immutable on the blockchain (no more deletions of 47 million records to hide them from a dozen securities fraud investigations). Crypto takes control out of the hands of corruption-vulnerable central authorities and distributes it among all stakeholders. Furthermore, crypto provides tools to help automate government actions in smart contracts, making them transparent and reliable and eliminating counterparty risk. Finally, crypto accomplishes all this by moving on from centralised authority and putting critical governance functions on the blockchain.

We will discuss the positive solutions offered by crypto in some detail below, but before we get to these solutions, we need to understand the gravity of our current problem.

7.2 Quantifying corruption

Many people suspect that there is corruption afoot in big business and in our many layers of governing institutions, but it is not a trivial matter to locate and quantify that corruption. As noted above, one way of identifying and quantifying corruption is the metric of IFFs. While there is no single, agreed-on definition of IFFs, they generally include tax evasion, multinational tax avoidance, the theft of state assets and the laundering of the proceeds of crime, and they also cover a broad range of market and regulatory abuses, including payment for favours, drug smuggling and human trafficking.

IFFs thus constitute a basket of financial crimes, and by considering that basket of crimes, we can begin to put a dollar value on their cost. For example, the UN estimates that between 2% and 5% of global GDP ($1.6 trillion to $4 trillion) annually is currently connected with money laundering and illicit activity.⁷ Notice that we are talking about trillions of dollars in IFFs, all occurring without the help of crypto and, we believe, being made possible because crypto is not widely used in our global financial system.

It is important to note that IFFs of all types are associated with either ineffective state functioning or illegitimate use of state power and are, without a doubt, an international problem – no country or region of the world escapes the blight of IFFs. Furthermore, capital outflows via IFFs can be considered lost GDP; IFFs reduce the revenue available to states and, ultimately, weaken the quality of governance. This means they weaken the ability of governments to crack down on crime and IFFs, creating a flywheel effect in which corruption begets more corruption.

In the Research Handbook on Money Laundering, Donato Masciandaro describes the societal costs of money laundering, outlining how every dollar of criminal proceeds reinvested can lead to more crime. In her introduction to the handbook, Brigitte Unger summarises the report thusly: ‘Since money laundering can lead to an explosion of crime rates, it is a ticking time bomb.’⁸

In order to understand the issue, it is important we trace its origins, identify the criminals, and determine the scope of the problem and the costs associated with it.

7.3 Who are the culprits?

If IFFs are a problem, it is natural to ask who is behind them. Are the bad actors crypto enthusiasts sending stablecoins on the blockchain? Apparently not, since IFFs were a problem before crypto even existed. As we will see, the bad actors with respect to illicit finance are big players in business (particularly finance) but also in traditional governance structures. For now though, let us focus on banks.

Although we opened this chapter with a discussion of actions taken against JP Morgan Chase, it is just one of the key offenders. Documents leaked from the US Treasury, known as the FinCEN Files, detail an astounding pattern of persistent abuse by five leading global banks, even after they were repeatedly caught. The International Consortium of Investigative Journalists (ICIJ) summarised the documents as follows:

Secret U.S. government documents reveal that JPMorgan Chase, HSBC and other big banks have defied money laundering crackdowns by moving staggering sums of illicit cash for shadowy characters and criminal networks that have spread chaos and undermined democracy around the world.

According to the ICIJ’s summary of the leaked documents, five global banks – JP Morgan Chase, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon – ‘kept profiting from powerful and dangerous players even after U.S. authorities fined these financial institutions for earlier failures to stem flows of dirty money.’⁹ And we must couple this with the fact that the government rarely takes action anyway.

US agencies responsible for enforcing money laundering laws seldom prosecute megabanks that break the law, and the actions authorities do take barely ripple the flood of plundered money that washes through the international financial system. In those rare cases where the government has shown an interest in these banks’ corruption, the banks largely ignored the government hand slaps. In some cases, they kept moving illicit funds even after US officials warned them that they would face criminal prosecutions if they did not stop doing business with mobsters, fraudsters or corrupt regimes.

The consequences of all this corruption have been to prop up and finance some of the worst criminal actors on the global scene. Former Treasury sanctions official Elizabeth Rosenberg observed that banks like Jamie Dimon’s facilitate this corruption by providing a mechanism for dirty money to ‘slosh’ around our financial system:

The FinCEN files illustrate the alarming truth that an enormous amount of illicit money is sloshing around our financial system, and that U.S. banks play host and facilitator to rogues and criminals that represent some of America’s most insidious national security threats.¹⁰

Too much of the business of centralised financial institutions takes place behind closed doors, so the temptation to alter the books or keep separate books or ‘accidentally’ lose the books is just too great.

7.4 Alleged attempts to deal with the problem

One might think that the gravity of all this corruption, the propping up of criminal actors and the global loss of wealth would lead to some attempt to solve the problem. Indeed, if one pays attention to congressional testimony about the dangers of crypto, one would think that government leaders are sincerely interested in this problem. However, the fact of the matter is that one can focus on where the problem is not (crypto) as a way of ignoring where the problem actually is (centralised governance and traditional finance’s banking systems).

In a paper published in the journal Policy Design and Practice, Ronald F. Pol found that ‘anti-money laundering policy intervention has less than 0.1 per cent impact on criminal finances’; more precisely, 99.95% of criminal proceeds are unaffected by anti-money laundering efforts.¹¹ Similarly, United Nations data for 2009 reported the figure for unaffected IFFs to be around 99.8%.¹²

One would think that with all the corruption in the world – and all the IFFs sloshing around in our financial system – finding and cracking down on corruption would be a trivial matter. Whether by design or incompetence, this is not the case. Indeed, Pol notes that ‘compliance costs exceed recovered criminal funds more than a hundred times over, and banks, taxpayers and ordinary citizens are penalized more than criminal enterprises.’¹³ In other words, whatever actions governments and banks are taking to crack down on corruption, they are not going about it in a cost-efficient way; for every dollar they spend on financial crimes, they recover one penny from the bad actors. And who is paying for these failing efforts? Ordinary citizens.

After seeing Jamie Dimon’s unrelenting media campaign against crypto with the backdrop of JP Morgan’s crimes, one begins to wonder if the campaign is not designed to deflect attention away from his own and similar organisations’ actions. After all, if governments are concerned with cracking down on crypto, they are not focused on the real source of the problem – centralised organisations like large banks acting behind closed doors. It is also possible that Jamie Dimon believes what he is saying about crypto, but if this is the case, he is not really campaigning against IFFs as much as he is concerned that crypto will steal his grift.

Similarly, many in US Congress have, for all practical purposes, been bought by traditional finance. Large banks and other financial institutions are now the biggest donors to political campaigns in the United States. Thus, the campaigns against crypto are perhaps better understood as campaigns to protect donors from the world of traditional finance and, by extension, their money-making machine – some of it legitimate and, as we have seen, some of it very much in the service of criminal activity.

If this perspective is true, and it very likely is, then it is just one additional example of a worldwide approach to the application of anti-money laundering (AML) policies. These AML laws and policies should be designed to stop IFFs, but unfortunately, they are being deployed as tools to harass political and economic competitors. There are plenty of examples to pull from, but to get a glimpse at the international scope of the problem, we can begin with the use of AML policies by the Indian government to crack down on political enemies.

Amnesty International has argued that Indian authorities are exploiting AML laws to target civil society groups and activists and deliberately hinder their work. In a report titled ‘Weaponizing counterterrorism: India’s exploitation of terrorism financing assessments to target civil society’, Amnesty revealed how the recommendations of the Financial Action Task Force – a global body responsible for tackling terrorism financing and money laundering – have been abused by the Indian authorities to bring in draconian laws in a coordinated campaign to stifle the non-profit public interest sector. These laws are, in turn, used to bring terrorism-related charges and, among other things, to prevent organisations and activists from effective fundraising.¹⁴

In particular, Aakar Patel, chair of the board at Amnesty International India, observed that ‘Under the guise of combatting terrorism, the Indian government has leveraged the Financial Action Task Force’s recommendations to tighten its arsenal of financial and counter-terrorism laws which are routinely misused to target and silence critics.’¹⁵

As you may have guessed, India is hardly the only place where AML laws and policies have been weaponised to assist despotic governments. The Open Dialogue Foundation published an article asking ‘Can the EU’s anti-money laundering reform help dictators?’. It argues that it not only can but that it does – that AML compliance can hurt civil society and that it does ‘harm the rights of law-abiding customers, including those fleeing from or fighting authoritarianism.’ The article goes on to provide a number of case studies to support its conclusion that ‘politically-exposed organisations or individuals can become victims of the so-called false positives in AML compliance, which disproportionately affects low-profit customers.’ For example, one class of victims of these policies are people trying to escape from despotic rule – AML policies prevent them from fleeing tyranny with their own money.¹⁶

As so often happens, AML policies that are alleged to crack down on crime – in this case, IFFs – do not really target the real bad actors (who are too powerful to bring to heel) but rather target individuals who are in no position to lobby against the policies. Perhaps you have noticed the difficulty in sending money to friends in other countries or had your bank account or PayPal account frozen temporarily for some arbitrary reason or other. This shows that the frictions are very real for little guys, even though they may be absent for larger players like JP Morgan Chase.

In the paper ‘Money Laundering’, Michael Levi and Peter Reuter offer a diagnosis of the problem: current enforcement mechanisms fail to do the most obvious thing – follow the money – with predictably poor results. They reason, ‘The regime does facilitate the investigation and prosecution of some criminal participants who would otherwise evade justice, but fewer than expected and hoped for by advocates of “follow the money” methods.’¹⁷

Rather than follow the money, the current system for controlling financial crimes utilises ‘know your client’ (KYC) methods that do not seem to be very effective against actual bad actors (drug cartels, corrupt governments and international banks) and create hassles for regular folks that just want to send a small amount money to a relative that needs help. This generates a problem of its own: such policies can create enough friction to drive otherwise law-abiding citizens underground; they push people to utilise the dark money economy. This is the conclusion drawn by Pierre-Laurent Chatain, Andrew Zerzan, Wameek Noor, Najah Dannaoui and Louis de Koker in a work titled Protecting Mobile Money against Financial Crimes: Global Policy Challenges and Solutions. In their view, ‘Overly restrictive identification and verification processes in know-your-customer policies may push users back to the informal financial system.’¹⁸

Of course, low-income individuals are not the only victims of AML policies. We will ignore examples like Venezuela and Cuba, which are politically charged, but a good example was the policy of greylisting the Cayman Islands. Greylisting, in theory, merely involves closer scrutiny, but it can have a number of economic consequences for a country, including a reduction in foreign direct investment and increased scrutiny from financial institutions and regulators can bog the economy down in red tape. According to Andrew Perkins, writing in an article for the Journal of Money Laundering Control, greylisting the Cayman Islands was something that never should have happened – the nation was held to standards that were not asked of onshore jurisdictions, with unfair and economy-wrecking consequences.¹⁹

Finally, as usual, these policies have been enacted with little concern for low-income individuals. Costs of money transfers have skyrocketed because of all the frictions introduced. Consequently, the people who most need money transfer services – for example, migrant workers who need to send their meagre income to families back home – are the ones who suffer. AML laws ‘exclude low-income people from financial services through onerous regulations.’²⁰

AML laws worldwide have not been effective at combating the IFF problem, recovering less than one cent for every dollar invested, forcing regular citizens to pick up the bill and placing an enormous burden on poor citizens who depend on money transfers to aid their families. At the same time, governments have not shown much interest in applying AML laws against large banks and other financial institutions. On the contrary, there have been instances of using the legal tools of AML laws to crack down on democratic movements and to support totalitarian regimes.

In summary, AML laws are powerful tools that governments wield for the purpose of fighting IFFs, but given that over 99% of criminal proceeds are unaffected by AML efforts, they clearly have not been effectively applied against the actual offenders, such as the world’s largest financial institutions. However, they have been deployed to harass political and economic enemies and migrant populations. Needless to say, we believe that Elizabeth Warren’s so-called ‘war on crypto’ is just the latest example of this ruse – directing AML policy against the crypto industry because it is perceived as a competitor to big banks.²¹ It is, in fact, directing AML policy against the tools that can liberate citizens from tyrannical, despotic regimes around the world and, in the process, harming refugees and impoverished migrant populations.

The case of Elizabeth Warren is a matter that deserves some parenthetical attention, in part because of its tragic nature and in part because it provides a fine example of how regulatory capture works. Warren, for those who do not know, is a United States senator from Massachusetts who gained attention early in her career for her campaigns against abuses by banks like HSBC. Subsequently, she has shockingly aligned with big banks’ interests and with CEOs such as Jamie Dimon, as their joint act in his congressional testimony revealed.²² Her ‘anti-crypto army’ is, in point of fact, fighting a war on behalf of traditional finance, with migrant populations being collateral damage. And we wish we could say the problem ended there.

7.5 Corruption all the way down

Earlier, we mentioned how cartels in Mexico rely on local governments to launder money and make their extortion collection policies more frictionless. No doubt, this takes place not just at the local level but at the national level as well. Certainly, on the global stage, there are nation states that are very much active in facilitating IFFs. Some nation states may even rely on IFFs for their very survival.²³ However, it is worth focusing on lower levels of governance for a while.

Corruption is by no means limited to large governments. Local-level corruption, when considered in the aggregate, can be as significant as state-level corruption and IFFs. The key to understanding corruption is that it has nothing to do with whether the government is large or small, and it has nothing to do with the private sector versus the public sector. Large states, small states, large corporations and small corporations can all be corrupt. The secret ingredient in every case is centralisation. Centralisation gives someone sole control over the books, and this, in turn, invites abuse. Even if there are independent authorities to ‘audit’ the books, only the centralised authority can know if there are multiple sets of books and whether the auditor has the true set. In previous chapters, we went into the details about smaller-level governance structures like homeowner associations and the astounding level of corruption that takes place in those organisations – again, because they are centralised governance structures. Financial corruption is ubiquitous in centralised organisations.

The point we want to drive home here is that the problem is not just with bankers like Jamie Dimon nor with cartels nor corrupt municipalities in Mexico. The problem exists at every level of government in every part of the world, and the one common denominator that makes IFFs and other forms of corruption possible in every case is centralised control over records and a lack of transparency. Nothing good comes out of smoke-filled rooms. Somehow, we need to inject transparency into the system, from top to bottom. The question is, how do we do this?

7.6 Crypto to the rescue

We believe that transparency is the only answer to the catastrophic state of affairs in which dark money moves freely around the world. Michael Levi, in his 2015 paper ‘Money for Crime and Money from Crime’, echoed this sentiment:

No-one could rationally think that AML controls in general or financial investigation in particular will ‘solve’ organised crime completely or eliminate high-level offending: for there even to be a chance to achieve that, there would need to be a step change in transparency and effective action against high-level corruption along all possible supply chains.²⁴

But is crypto really the answer? How can this be? What of all the stories about money laundering that come from the likes of Jamie Dimon and Elizabeth Warren? These are fair questions, given what one hears in the media.

Perhaps we should look closer at the facts before we get into the details of how and why crypto will ultimately solve this problem. If we return to the topic of IFFs, then the question is naturally how crypto and blockchain technology can help with those. The answer, of course, is that IFFs are flows of money that are not visible to us. They take place behind closed doors. Once such transactions are placed on the blockchain, they are visible to all.

You do not need to take our word for this. You can go to any blockchain explorer, open it and follow the flow of money from any crypto wallet that might interest you. You can follow the money from that wallet to the next wallet and on and on until it leaves the blockchain and enters the shadowy world of traditional finance, which let us be honest, is the only point in the whole process where deception becomes possible.

More importantly, blockchain technology offers us the possibility of programmable money. To illustrate the idea of programmable money, imagine that we designed a currency that was programmed so that if it was in the wallet of a minor, it could not be used to buy alcohol or tobacco products. The transaction would simply not go through; the money would not be functional for that purpose. This would not involve presenting IDs or complying with KYC checks but simply the idea that the money coming from the wallet of a minor would not work for certain purposes.²⁵ Applying this idea to IFFs, you do not actually need to rely on ‘following the money’. You could program the money in such a way that it could not ‘go dark’ or be passed through the wallets of known criminals.

Sam Bankman-Fried, who is currently in prison for fraud committed when he was head of the crypto exchange FTX, is often associated with corruption in crypto, but none of his corrupt actions took place on the blockchain, nor could they. He did his dirty dealing behind closed doors at his centralised exchange. It was only there, in that centralised exchange, that he could take money from clients and repurpose it elsewhere. He created an environment where crypto could go dark. But programmable money could be engineered so that if it was placed in an exchange’s reserves it could not be used for other purposes. One would not need to rely on the honesty of SBF. One could rely on the integrity of programmed money.

So, where do people like Jamie Dimon and Elizabeth Warren get the idea that crypto is a tool for money laundering? Presumably, from the idea that one might not know to whom a particular wallet address belongs. However, if someone is moving dirty money onchain, it typically comes from someplace offchain that made it dirty in the first place, and it typically goes to someplace new offchain. If it goes offchain into the account of a terrorist organisation, then that is a clue that it is dirty. If it goes onchain, coming from a narcotrafficker, then that is again a clue that the money is dirty; with programmable money, that designation could not be laundered away. The good news is that once the money is onchain, one can follow it to its destination, or alternatively, one can program the money so that it shows itself as dirty given its origin, thus making it non-transferable to legitimate businesses (or to politicians). This is in marked contrast to the current system in which wealth is transferred in piles of cash or diamonds or artwork or gold or transfers of property or any other method of hidden wealth transfer that you can imagine.

Now, you might imagine that if there are centralised onramps to the blockchain like FTX, then these are tools by which dirty money can enter and leave the blockchain. However, this is easier said than done, for there are precious few onramps for crypto that can handle any serious monetary liquidity and those ramps that can (like the publicly listed Coinbase) are regulated. To be sure, an individual on the street can send you some crypto in exchange for cash, but this is not a serious problem in a world where trillions of dollars in dark money move about the planet with the help of nation states and global banking. Crypto and the blockchain are the only part of the entire process that is currently pristine.

This is why, in this book, we make the case that the most important application for blockchain technology will not be for financial matters alone but rather for the business of human governance. It too must be made transparent, and it too must be placed on the blockchain, because until it is, governments will simply remain centres of power doing things behind closed doors, including the transmission of dark money around the global financial system.

7.7 The value of corruption-free governance

We have argued that crypto is not the problem with respect to IFFs but rather it is the solution. And we have argued that the problem is indeed massive – trillions (not billions, but trillions) of dollars of dark money slosh through the international financial system thanks to bad-acting banks and governments and other centralised authorities. However, even this fact does not do justice to the harm caused by IFFs and the opportunity costs of not having effective policies for dealing with them. In other words, we could have policies designed to actually fight IFFs as opposed to policies that protect the interests of large banks or policies that harm the interests of migrant workers who are simply trying to send money home to their families.

The World Bank’s 2006 book Where Is the Wealth of Nations? highlights the profound impact institutions have on national prosperity. It found that the rule of law and human capital are the largest factors in the creation of wealth, dwarfing natural resource extraction and physical capital.²⁶ Furthermore, a study on institutional development and transaction costs published in the Journal of Institutional Economics found that a mere 0.1% reduction in transaction costs could quadruple a country’s wealth. To put this into perspective, this is the difference between the financial health of Argentina and the financial health of Switzerland.²⁷ Optimising our institutional processes and eliminating the corruption that so naturally flows from centralised governance could not only halt the losses of trillions of dollars that are currently robbed from global GDP but also unlock vast economic potential worth additional trillions in value.

7.8 Public confidence in governance

In the previous section of this chapter, our thesis was that eliminating IFFs could have a flywheel effect in that minor improvements in financial efficiency can have massive positive consequences. Additional efficiencies could flow from having a financial system that is more capital efficient – a system in which there were fewer frictions to the legitimate movement of capital. However, there is another flywheel effect that we could benefit from.

As matters currently stand in our world, governments do not inspire much in the way of confidence from their citizens. In countries like Mexico (which at the time of writing has the planet’s twelfth largest economy), citizens’ cynicism over criminal elements in governments cannot be advantageous for their national economies.

Understandably, seeing businesses that are clearly money laundering operations and skyscrapers bearing the names of banks that build their empires off the profits of the drug trade generates a lot of suspicion. Even in the United States, there is widespread public perception that governance at every level is corrupt and that financial institutions are equally corrupt (no doubt due to the ineptitude of governments in fighting corruption). Nor is this perception somehow mistaken. The people are right; their government systems are corrupt, non-transparent and not at all working in their interests.

We can even quantify this perception. Public confidence in governmental institutions has been in decline for decades, and it is happening everywhere. For example, in a report published by IPSOS (Institut Public de Sondage d’Opinion Secteur), it was found that France has reached a new historic low, where 82% of citizens believe the country is heading in the wrong direction. Great Britain experienced the biggest fall in optimism in the same month of the report, dropping fourteen percentage points.²⁸

In the private sector, there is an equivalent to public trust in government – the customer satisfaction (CSAT) score. Across a wide variety of industries – be it finance, energy, technology, shipping or airlines – industry average CSAT benchmarks are often found to exceed 70%, essentially the inverse of the poor scores that people assign to their national governments. The question, of course, is why governments do so much worse in comparison to other institutions – even airlines, of all things. One possibility could be the quite justified perception that governments around the world are dens of corruption.

Transparency International’s Corruption Perceptions Index report monitors 180 countries and territories around the globe by their perceived levels of public sector corruption. Its 2023 report stated that:

Over two-thirds of countries score below 50 out of 100, which strongly indicates that they have serious corruption problems. The global average is stuck at only 43, while the vast majority of countries have made no progress or declined in the last decade. What is more, 23 countries fell to their lowest scores to date this year. [. . .] Both authoritarian and democratic leaders are undermining justice. The global trend of weakening justice systems is reducing accountability for public officials, which allows corruption to thrive.²⁹

Let us step back and remind ourselves why this is so important. We began by pointing out that most of the wealth in the world is tied up in the effectiveness (or lack of effectiveness) of traditional political governance systems. We also saw that tiny changes in efficiency can have enormous consequences on whether a government can be effective in helping its people. Just a slight change in efficiency can affect whether the economy is going to be equivalent to that of Switzerland or to that of Argentina in recent decades. And given the importance of good governance, we are brought back to the question of when we are going to do something to bring it about.

The good news is that we already know what needs to be done. The first and most important thing to do is continue to develop blockchain technologies and apply them to all aspects of human governance, from the financial system to elections. Doing so will make government actions transparent, and applying the technologies to our financial systems will make them equally transparent. Crypto shines a bright light on activities that today take place behind curtains and in smoke-filled rooms with little to no accountability. The scourge of centralised governance has been a magnet for corruption for too long. It is time to tear down the curtains, kick down the doors of the smoke-filled rooms and shine the light of transparency on all aspects of human governance, including our financial system. Crypto is not the problem; it is our best and only solution to the problem.

Of course, there are many forms that future decentralised governance structures might take, including the idea of cyberstates, discussed in Crypto Anarchy, Cyberstates, and Pirate Utopias,³⁰ or what Balaji Srinivasan has called ‘network states’.³¹ Network states or cyberstates, or whatever we wish to call them, have received a lot of attention lately. In the next chapter, we will consider whether they are a promising alternative for the post-Westphalian era.