Original source here: https://www.btcpolicy.org/articles/great-power-network-competition-bitcoin
It was published in October 2023 but I hadn’t read it until recently.
Sharing my favorite excerpts here, I use // when appending comments
—
Network power consists in the ability of a state to exercise surveillance and chokepoint controls
over a global network. For example, signals intelligence collection on global communications, suspicious activity reports on banking transactions, and end-user inspections on semiconductor technology are all forms of surveillance power from which the U.S. derives immense geopolitical advantage.
// reminds me a bit of Balaji’s Sovereign States thesis… digital networks gradually gaining power and autonomy
namely the “frenemy” relationship that previously obtained between financial capital (dominated by the G7), energy/commodities (dominated by OPEC+), and goods production (dominated by China)
// energy/commodities seems more complicated than just OPEC dominance given US shale growth and China & Brazil dominance in certain key categories
The old playbook of economic coercion and network exclusion may work for minor powers, but it certainly isn’t going suffice (and may even backfire) in an era of great power competition. Note that China’s geoeconomic allies across OPEC and Russia (and the expanded BRICS) dominate the oil market, most commodities trade, and are increasingly at the center of global value chains.
Social Security started drawing down trust fund reserves (USTs) for the first time in 2021, with a projected depletion by 2034
// if 2034 is accurate, that’s highly concerning… and also why I told my mom to start taking distributions as soon as she was able
An IMF study found that “an individual in the 75th percentile of wealth distribution who invested $1 in 2004 would have yielded $1.50 by the end of 2015—a return of 50 percent. A person in the top
0.1 percent would have yielded $2.40 on the same invested dollar—a return of 140 percent.”
A leaked analysis by the Office of Naval Intelligence showed that “China is the world’s leading shipbuilder by a large margin”, controlling “~40% of global commercial shipbuilding market” with a
shipbuilding capacity 232 times greater than the U.S.
China and a handful of other nations now own over $12 trillion in U.S. equities, up from $2 trillion in 2010
// certainly any attack on the US would include crashing financial markets, even a 20% drop in stock prices would lead to rising panic and societal discontent… much less 50% or more
equally pernicious is China’s covert recycling of dollar surpluses via offshore money centers to control scarce western assets and influence and corrupt democracies. A synergy between transnational criminal organizations, state intelligence organs, and western middlemen operating in the “gray zone” of global finance have helped route trillions via shell companies into western financial and real estate markets
Recognizing CIPS will never supplant CHIPS and SWIFT, China is looking to “leap-ahead” and capture first-mover advantage and structural network dominance over emerging global fintech and permissioned national blockchain systems
// India seems to be doing this well, and maybe El Salvador…
It is noteworthy that China and Saudi Arabia have increased their strategic partnership, as the
erstwhile U.S. ally has become more geopolitically promiscuous under Mohammed bin Salman. MBS—a millennial autocrat with no taste for democracy but extreme ambitions for domestic development—has
found in Beijing the perfect source of both military support (e.g., ballistic missiles) and construction capabilities to drive his Vision 2030 objectives
China is exporting (and finding strong demand for) a bundled techno-authoritarian “stack”
consisting of dedicated fiber-optic cable networks, cloud hosting, “cybersecurity” services,
5G/Internet of Things digital infrastructure, surveillance equipment, cross-bridged CBDC platforms
(built to integrate with the China’s Digital Currency/Electronic Payment (DC/EP) system of
course), and sophisticated AI monitoring software, alongside onsite training, technical assistance,
and customer support for would be autocrats across the globe.
Thesis: Bitcoin and regulated dollar-based stablecoins may help the U.S. counter adversary efforts to challenge U.S. geoeconomic power while reinforcing liberal value systems around the world.
// liberal value systems in the broad and original sense, I would hope, not the Democratic party “liberalism” we’ve come to see this past decade which disproportionately benefitted specific minority groups at the general expense of most others
Bitcoin and dollar-stablecoin adoption along the frontlines of Cold War 2.0 may serve as a bottom-
up bulwark against China’s geo-monetary network expansion strategy. China has banned Bitcoin in its own country but cannot do the same across the rest of Eurasia, the Middle East, and Africa, many nations of which have relatively permissive cryptocurrency regimes
the United States can take special advantage of the dollar-based stablecoin ecosystem that has emerged to facilitate cryptocurrency trading, especially offshore. The top two largest dollar-pegged stablecoins hold a market cap exceeding $100 billion, and are growing quickly. One can argue that these private stablecoins are winning the fight the U.S. should be fighting against the DC/EP, with market-driven transaction volume in just these two dollar-stablecoins vastly outpacing that of the PBoC’s DC/EP efforts to-date.
// again, users vote with their wallets, and the market wins (in the long-run)
increased demand for these stablecoin issuance (mostly driven by increased demand for Bitcoin, and its rising dollar price) will drive increased demand for U.S. bonds (and other U.S. corporate and municipal debt blessed as “money-good” High Quality Liquid Asset collateral). At a time where foreign demand for our debt is drying up, Bitcoin-driven stablecoin growth can serve as another source of government financing
Note that while the foreign official sector is broadly trying to de-dollarize or diversify their FX
exposure on the margin, the populations in these countries want dollars more than local currencies.
The fact that ~99% of stablecoins are dollar-denominated appears to demonstrate that, absent government forces, the high salability of the dollar will win against other currencies.
// it is interesting and ironic that many states want to move away from the dollar while their citizens clearly want MORE dollars, not less…
Bitcoin is a novel synthetic, and scarce, digital commodity with global fungibility, limited
counterparty risk (zero if self-custodied), large and growing liquidity, and unit scalability to settle any quantity of value. Its monetary properties offer a similar (if not better) scarcity and bearer profile than gold (and other commodities). Its technical properties offer a similar (if not better) transactional and settlement profile than fiat-exchange system rails (e.g., SWIFT, FedWire)
// beautifully said
States will still seek to control and monitor Bitcoin (and related stablecoin) flows as best they can,
which will set up a technical arms-race between protocol development and chain-analysis. Some states may desire the benefits of holding Bitcoin for themselves, but seek to limit domestic, individual engagement.
From a national security perspective, key decision-makers may realize the fact that allowing Bitcoin to monetize alongside (or outpacing gold) would disproportionately benefit the U.S. (whose citizens and firms hold potentially a majority of all Bitcoin, and whose companies and capital markets would grow in tandem). That is, while China and Russia double-down on analog gold, the U.S. can countermove to digital gold.
// this would be a powerful and effective chess move, and maybe Trump / Vance can push us in that direction, but I remain skeptical for now