Patrick McKenzie: prediction

Transcript context

…Here’s another answer of what the value is. We want some sort of hedge. I think this is actually a reasonable argument. I actually don't buy the capabilities unlocked by crypto, but I do buy the argument that we want some kind of hedge against the government going crazy and KYC/AML leading to state surveillance. All the compliance departments in the banks start seeing if you've been to political protests and de-banking you. It may seem unlikely, but it's good to have this alternative rail which keeps the system honest. Given that there's an alternative, if things go off the rails this is a worthwhile investment. Society as a whole can't even count that low in terms of the other resources that it spends. It's a good hedge against that kind of outcome. I'm actually much more sympathetic to crypto people than they expect most people who have a traditional financial background to be. It is descriptively accurate that the banking system — and all companies which are necessarily tightly tied to the banking system, which might be all companies — are a policy arm of the government… Whether people articulate that in exactly those words or not varies a little bit, but when you have your mandatory compliance training you'll be told in no uncertain terms that you are a policy arm of the government. I feel for crypto folks that say that this feels like warrantless search and seizures of people's information in a very undirected dragnet fashion. I have somewhat complicated thoughts about this. The modern edifice of KYC and AML dates back to the Bank Secrecy Act in the United States, which was in late 1970s. At the time, the US federal government was strictly rate limited in how much attention it could give to KYC and AML. Maybe because we thought we had very limited state capacity at the time, the government would make rational decisions and go after $10-100 million enormous white collar crooks and drug trafficking cartels a year. It would not surveil down to literally everyone in society. However, the regulations we wrote and have continued to tighten over the years do effectively ask for transaction-level surveillance of every transaction that goes through a bank. This is the actual practice. This is not a conspiracy theory. I'm making nothing up, folks. The actual practice in banks is that they have about as many intelligence analysts as the American intelligence community has. They get this scrolling feed of alerts generated by automated systems. For each alert, they go, “don't worry, don’t worry, don’t worry, don’t worry…” for millions of these alerts every day. Then for some tiny percentage, they say, “oh dear, this one might actually have been a problem. I'm going to write a two to four page memo and file it with the Financial Crimes Enforcement Network.” In all probability, no one is ever actually going to read that memo. We have an intelligence community-sized operation running in banks to write memos that no one ever reads. Some tiny portion of those memos will be useful to law enforcement in the future. If you had explained that trade in a presidential debate in the 1980s, I find it extremely unlikely that any part of the American polity would want to buy that. Could we perhaps spend tens of billions of dollars on it? But we did that. To that extent I'm extremely copacetic with crypto folks on this. Point. A: This thing factually exists in the world. I agree with you that it does. Point B: In an ideal world, this thing would not exist. I agree with you, there are very real privacy fears. However, crypto has this habit. People who are good at sales have various sales pitches that they give to people. orld, this thing would not exist. I agree with you, there are very real privacy fears. However, crypto has this habit. People who are good at sales have various sales pitches that they give to people. Actors within the crypto ecosystem will talk an excellent game about privacy as long as “number go up.” When you have to choose between being tied into the banking system — which is necessary for number go up — or you can choose privacy, they will say, “excellent, I choose number go up.”…

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