In recent years, cryptocurrency has had a sharp rise in popularity and value. The uncertainties of the COVID-19 pandemic may have driven new investors in this space—especially the ultra-loose monetary policy response by central banks. The value of a single bitcoin has risen from under $10,000 in 2018 to over $66,000 at its high in October 2021.
Even governments have jumped on the crypto bandwagon. Many have invested in it, and some have even passed laws favoring it.
For example, El Salvador—a Bitcoin investor—passed legislation classifying Bitcoin as legal tender in June.
According to reporting by El Faro, the president of El Salvador “rushed the Bitcoin law through the legislature. From its initial presentation to its passage with 62 of 84 votes, the bill spent five hours in the Assembly, ending just after midnight on June 9.”
The new bill makes it mandatory for businesses to recognize Bitcoin as a legitimate and legal tender, and permits taxes and debts that were outstanding before the bill’s passage to be paid in Bitcoin. In the event that a business isn’t able to perform Bitcoin transactions because of limited technology or insufficient access to the internet, they will be exempt from these requirements. However, the bill fails to clearly define who will receive immunity from the law’s provisions, which can further complicate an already confusing change for businesses.
Nayib Bukele, the president of El Salvador, has tweeted that his government will not force businesses nor citizens to adopt Bitcoin, but as Decrypt reports, Article 7 of the Bitcoin law reads: “Every economic agent must accept Bitcoin as payment when offered to him by whoever acquires a good or service.” Bukele can promise all he wants that he will not enforce that section, but the law clearly gives his government and future governments the power to force businesses to accept Bitcoin.
For proponents of Bitcoin, it may be tempting to celebrate such a “pro-bitcoin” law. That would be a mistake, because the law as applied promotes government coercion, a violation of Bitcoin’s pro-freedom founding principles.
As J.P. Konig at AIER pointed out, El Salvador’s Bitcoin law is even stricter than typical legal tender laws, and is more accurately called a “forced money rule.” Indeed, the upshot of the rule is force, not freedom.
What Property Means
Imagine you start a business in El Salvador selling paintings. Let’s say you have one particularly nice one: a beautiful landscape piece purchased from a local artist.
You can store it, alter it, gift it, trade it, sell it, even deface or destroy it—whatever floats your boat. You can also choose not to do any of those things.
If you truly own that painting—if it is your property—what does that mean? It means that you—and only you—can dispose of it however you decide. Its disposal is properly under your discretion—”proper” in this sense is the etymological root of the word “property.” You can take it home and display it for your friends' admiration. You can store it, alter it, gift it, trade it, sell it, even deface or destroy it—whatever floats your boat. You can also choose not to do any of those things.
Businesses often display a sign giving notice that, “We reserve the right to refuse service to anyone.” This sign is a simple assertion of the business-owners’ property rights, which includes the right not to make their property available to someone if they so choose for whatever reason.
Let’s say someone walks into your place of business asking to buy your landscape painting. However, instead of the listed dollar price, the shopper wants to pay in the equivalent amount of bitcoin.
Let’s say you don’t want to make that exchange. Maybe you think the going market exchange rate of bitcoin to dollars is too high. Maybe you think bitcoin is “a scam.” The reason doesn’t really matter. If the painting is truly your property, you have the right to refuse to sell it to anyone for any reason.
Force Over Freedom
But under any future enforcement of El Salvador’s new bitcoin law, you would not have the right. You would be forced to sell your painting (something you value highly) for bitcoin (something you may not value at all). That is a flagrant violation of property rights.
As Robert LeFevre wrote in The Philosophy of Ownership:
“All property is subject to sovereign control by some human being. Someone somewhere has the ultimate decision-making power. When the claimant to property has paid for the property in full or has rightfully acquired the property through first claim, sovereign control rightfully belongs to him. If a man or an agency exists to which the owner must repair for permissions to use his property as he wishes, or to dispose of it as he sees fit, then in fact he is not the sovereign owner, but some other man or agency has sovereign control.”
In this case, it is the government of El Salvador that is claiming “sovereign control” over the merchandise of any “economic actor” in the country by forcing them to accept bitcoin.
Like in The Godfather, it would be an “offer you can’t refuse.” That’s coercion under the threat of violence, not commerce under the principles of property and monetary freedom.
Under monetary freedom, people are free to accept or refuse any form of payment. Under monetary freedom, currencies are not advantaged or disadvantaged on the market with government force. Instead, they rise and fall based on their merits.
Forced Currency Vs. Monetary Freedom
We have not had monetary freedom in a long time. As a result, fiat currencies like the US dollar have enjoyed an unfair advantage, even though their value has been whittled away by inflationary policies. By offering millions of people an escape route from the government’s fiat money system, Bitcoin has facilitated monetary freedom, as it was designed to do by its inventors and early developers. Compulsory “bitcoinization” laws like El Salvador’s are contrary to the very purpose and spirit of Bitcoin. If we want to promote bitcoin in a way that truly honors its mission, we should not try to give it government-backed advantages. Instead, we should work to abolish the government-backed advantages enjoyed by state currencies.
That would empower crypto to triumph over fiat money on its own merits.