The crypto libertarians who now love big government

Binance founder Changpeng Zhao was pardoned last week. Is crypto yet another pillar of tech that is fusing with the state?

For three months in 2018, I worked at a blockchain startup that claimed it wanted to “decentralize the web,” a noble idea at face value. Without getting too deep into the bizarre culture there – including their desire to freeze some of the engineers’ brains, and a plan to make a system so self-sufficient that each of us humans would become “obsolete” – it became fairly clear over time that this blockchain project’s real goal was to pump the value of its token within a “decentralized app” ecosystem, one that didn’t actually work as a functioning Internet.

I assumed that, like many others in tech racing towards an exit with their equity, this was just another way of creating a lot of wealth for its key stakeholders, while maybe also making the founders feel stimulated by their own technological genius. (Suffice it to say, my employment there did not work out!)

While pumping the value of tokens for the few remains a commonality in crypto, anything I experienced back then seems like child’s play compared to the insidiousness of crypto in our society now. Today, crypto has morphed into something far more sprawling than a digital financial network to enrich a few software engineers and their investors. Today, it has become a central conduit of bribery for the presidential administration.

Last week, President Trump pardoned Changpeng Zhao, known as CZ, who founded the crypto exchange Binance. CZ was previously convicted for facilitating money laundering and enabling the flow of funds to terrorists, ransomware hackers, and child abuse sites. CZ spent four months in prison, and Binance was ordered to fork over a record $4 billion to the government.

But CZ recently made clear his support of an entity called World Liberty Financial: the Trump family’s crypto venture that is worth over $5 billion today.

This comes after the Securities and Exchange Commission dropped charges against Justin Sun–after he purchased $30 million in crypto tokens from World Liberty Financial (today, his total investments in WLF are over $75 million).

Trump, once a detractor of crypto, has now seen the value of his crypto holdings become worth far more than his real estate holdings combined. If you want to curry favor with the President, you now have a seamless way to send funds directly into his pocket.

But what’s particularly strange about this moment is that no one is trying to obscure that they are buying up Trump’s tokens, or that everything is now pay-to-play and scratching each other’s back. Among those researching this phenomenon is writer, author, and journalist Jacob Silverman–a researcher into how the crypto hype has morphed into this brazen enablement of bribery.

We sat down to discuss CZ’s pardon, what it means for the future of financial crime enforcement, and whether the libertarianism that used to be intrinsic to crypto ever even existed in the first place.

Ariella Steinhorn: You wrote a New York Times op-ed about Trump’s World Liberty Financial coin, and how it is enriching his family in a way that is far more public than bribery ever has been before.

How do we prevent, as you write, “anyone – you, me, an Emirati prince” – from shoveling unprecedented sums of money to this administration and the Trump family?

Jacob Silverman: Unfortunately it’s going to keep growing unless anything changes. There is no legal or regulatory mechanism in place to stop this. Especially with Democrats in the minority, this is going to become more prominent. More money will become more interwoven with statecraft and international geographic politics.

AS: I think about how Trump has recently cozied up to Pakistan because of their embrace of his crypto ventures. But given that he seems to be making quid-pro-quo decisions based on who the highest bidder is, it all seems so fluid. Couldn’t he just shift alliances, and what does that mean for diplomacy?

JS: Yes, maybe someone on the Indian side shovels money to WLF, and Trump’s mind changes. It makes the United States a very unstable and topsy turvy ally, and everything becomes transactional. It’s made worse by the fact that these kinds of exchanges can happen so quickly–someone can very conveniently send money to one of the wallets.

For other countries or for our allies, how can they trust that he’s a man of his word if someone can change his mind?

The New York Times had some good reporting about crypto deals, and they were careful to say that this wasn’t explicit quid-pro-quo, but that it sure looked like that. Sheikh Tahnoon bin Zayed Al Nahyan, an Emirati who controls $1.5 trillion in funds.

(From the piece: At the heart of their relationship are two multibillion-dollar deals. One involved a crypto company founded by the Witkoff and the Trump families that benefited both financially. The other involved a sale of valuable computer chips that benefited the Emirates economically. While there is no evidence that one deal was explicitly offered in return for the other, the confluence of the two agreements is itself extraordinary. Taken together, they blurred the lines between personal and government business and raised questions about whether U.S. interests were served.)

AS: You’ve done some fascinating reporting into Dubai-based Aqua 1 Foundation, tracing their $100 million donation to Trump’s World Liberty Financial through this mysterious character “Dave Lee.”

What do some of these other people want? They want money and profit of course, but what else? What kinds of favors?

JS: Aqua 1 is now making other investments that are not tech-related, but there are still a lot of unanswered questions. What troubles me about the Aqua 1 Foundation is, what does this guy actually want? He works at a Chinese state energy company, and he is part of a collective of Asian crypto investors. But what do they expect from their $100 million?

AS: Will there be any meaningful enforcement of financial crime? Is money laundering just…legal now?

JS: If it aligns with the administration’s political priorities they’ll go after money laundering. The Tornado Cash crypto mixing case still went through, though there was some pressure to drop it.

But broadly speaking, enforcement mechanisms are gone, and white collar criminal enforcement will be selective. The question looking ahead is, how much of enforcement will be tied up in people doing favors for Trump?

AS: Sam Bankman-Fried must be pretty annoyed in prison right now!

JS: SBF is the last guy waiting. A pardon can happen with SBF, just the fact that he was a Democratic donor isn’t the reason why; lots of dark money was going to Republicans. His family has ties to Peter Thiel, but ultimately someone has to cough up the money for the pardon.

AS: I think about how people I knew in the crypto world always seemed to have a chip on their shoulder. They take this posture of “I told you so” whenever they see any kind of success, or label anyone even mildly critical as proliferating “FUD” “fear, uncertainty, and doubt.”

Why do you think that is, where is this attitude coming from?

JS: When you trace some of these people’s life stories, they talk about trying other hustles or going through other tech or financial fads. Many of them are trad-fi (traditional finance) rejects.

They have to prove a lot of people wrong, because they don’t have the greatest reputation. A lot of people hear crypto and think it’s a scam–so people in the industry come with a defensive posture in general.

Part of the crypto mythology is that they are the underdog against the state and the powers-that-be, that they’re against corruption and centralized power. But they don’t do that in practice.

AS: After the news of the pardon came out last week, there was a deep-dive in the New York Times about how crypto has become the libertarian movement’s greatest victory. But as crypto power concentrates within the government, little about this seems libertarian?

JS: True tech libertarianism has never been practiced. People like Peter Thiel have talked about exiting society or funding tech in a way that facilitates that. But then they pour money in recent years into controlling, subverting, or influencing the US government.

Crypto has libertarian cyberpunk underpinnings, but they now have decided that the ability to get rich and profit off of government relationships is really enticing.

A few months back, I went to the annual crypto convention in Las Vegas, where speakers included J.D. Vance and also the founder of dark web marketplace Silk Road, Ross Ulbricht, whom Trump pardoned to gain the support of the libertarians. But a lot of these people have become successful by stopping being libertarians, and throwing their lot in with MAGA.

The financing of crypto is not coming from the consumer sector or from retail investors. It’s coming from Wall Street and the government.

AS: A lot of this reminds me of an interview I did last week with a researcher about how AI is fusing with the government.

It seems like crypto is another pillar of the tech industry that is melding with the government. Do you think that in 2009 when bitcoin first got started, that people envisioned this merging of crypto with the state would become the end result?

JS: Ten or fifteen years ago, I don’t think people knew that crypto would rise to this level of political power. They always told stories of crypto subverting and flipping fiat money.

But it’s happened more by collaborating with the state and the powers-that-be.

Any time bitcoin hits $100,000, it gets grafted on to the mythology: people say, I knew that this would always happen, now the next stop is $1 million. They create these prophecies or fantasies that they can retrofit for the present moment, even if those fantasies haven’t been fulfilled.

Now, they’re high in the saddle and feel happy and empowered. It fits in with this larger mythos that their success is assured.

AS: There must be a lot of dissonance held here. What’s incredible to me is how brazen they are, that they’re not trying to hide any of this. And that Trump’s supporters don’t care.

JS: There doesn’t seem to be much discontent within MAGA that the president is pocketing money hand over fist.

That’s what was weird about being at the crypto conference in Las Vegas. You had all these incredibly powerful mainstream figures, including Republican officials. There was a very clear union and alliance between the industry and highest levels of the state. But it’s not usually so out in the open.

AS: All of this is concerning but what are you most worried about?

JS: I do go back to: how is there ever going to be accountability? Rules have been dismantled or others made legal. This is how you end up with a kleptocracy or mafia state: it’s pay to play, no rules, and you can get off.

The $4 billion Binance fine is the biggest corporate fine in history, but that didn’t seem to matter.

We are taking democracy for granted, even our crummy version–and this is how things start heading towards tolerance for a criminal state.

For people or retail investors who are being scammed by crypto–some of them Trump supporters! –there’s a strong instinct to deny even when confronted with reality. They’ll say, Biden is corrupt too, or what about Nancy Pelosi’s stock trading. None of those even compare. But so long as they still have resentment, that’s more important than rule of law.

Thanks for reading, see you all next week!