Can digital cash survive contact with its enemies?

The core principle driving the growth of cryptocurrency has remained unchanged from Bitcoin creator Satoshi Nakamoto to today’s builders: To paraphrase the mission statement of public blockchain lobbying group CoinCenter, human autonomy, privacy, and freedom will not survive the 21st century without some form of digital cash.

Cash here does not mean simply paper money, but any monetary bearer instrument that can be transferred without an intermediary such as a bank or processor, which introduce the risk of interference or monitoring. PayPal, credit card payments, and bank transfers are not cash, but Bitcoin and other digital tokens can be. The decentralized and pseudonymous nature of blockchain-based digital currency makes crypto transactions impossible to block or shut down, and provides some limited privacy protections.

These protections serve a variety of positive social purposes, whether you’re trying to circumvent an authoritarian regime or just pay for entirely legal stuff like sex toys without getting your account closed. Physical cash has similar advantages, but is onerous to use for the long-distance transactions that increasingly dominate the contemporary economy.

The past few weeks have sparked a wave of worry that, as Bitcoin and other cryptocurrencies grow, national governments and regulators will not allow them to function as digital cash. As crypto lawyer Jake Chervinsky gauged the mood this week, “governments are getting more concerned about both illicit activity and the threat to their monetary sovereignty” stemming from cryptocurrency.

One piece of evidence for that was last month’s surprisingly harsh action against the essentially unregulated cryptocurrency exchange BitMEX, whose founders now face not just civil but also criminal money laundering charges in the United States. But BitMEX and its CEO, Arthur Hayes, have been openly taunting regulators for years, practically begging to be made an example of.

More systemic worries have focused on the possibility of tightening regulations around the world, particularly concerning how cryptocurrency moves on and off exchanges. There is specific concern that the international Financial Action Task Force (FATF) will recommend what’s known as ‘whitelisting’ to global regulators.

Whitelisting rules would require that exchanges only allow users to withdraw cryptocurrency to wallets linked to their identity, in essentially the same way banks require thorough identity confirmation for all accounts. Whitelisting is already enforced in Switzerland, somewhat ironically.

By Chervinsky’s reading, the rule “practically prohibits [cryptocurrency] self-custody in the guise of verifying the owner of a private key.” If true, that would mean whitelisting rules could undermine much of the promise of cryptocurrency as privacy- and freedom-preserving digital cash.

However, CoinCenter itself believes those concerns are somewhat overblown. In August, the nonprofit argued that whitelisting would only apply to withdrawals directly from exchanges, leaving crypto’s cash features intact for peer-to-peer transactions. And at any rate, CoinCenter says its conversations with regulators and lawmakers suggest a whitelisting rule is “nowhere on the horizon” in the U.S.

That should be reassuring not just because it suggests some regulatory recognition of the value of digital cash, but because regulators are resisting the urge to make crypto an easy target when they have vastly bigger fish to fry. As highlighted yet again by last month’s leak of FinCEN suspicious activity reports, the world’s most dangerous criminals don’t use crypto to launder money: they use banks with respectable-sounding names like HSBC and BNY Mellon.

Bank money laundering is as we speak ripping global society apart. It gives savvy criminals and corrupt leaders access to tools that let them loot and pillage without consequence, and at a scale that is quite literally hard to comprehend: the FinCEN reporting found $2 trillion worth of suspicious activity at banks between 1999 and 2017.

By contrast, one analysis found that crypto exchanges were used to launder $2.8 billion in criminal funds in 2019. That means exchanges would have to operate in their current, Wild West state for three hundred and fifty-seven years to do as much damage as the banks already have.

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Finally, we have a question for our readers. This week saw Square announced the acquisition of $50 million in Bitcoin, which appeared to be headed for the company’s long-term treasury, rather than for use with the Cash App. That followed tech firm MicroStrategy converting $425 million of its treasury to Bitcoin.

So here’s the question for you: What major firm will buy Bitcoin next – and why?

Send your one or two sentence thoughts to ledger@fortune.com. We may feature your comments, name, and/or title in future editions of the Ledger.

David Z. Morris

@davidzmorris

david.morris@fortune.com

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