Bitcoin, Human Rights and the ESG Debate

Feb 7, 2022

Alex Gladstein

Chief Strategy Officer, Human Rights Foundation

Alex Gladstein is Chief Strategy Officer at the Human Rights Foundation. He has also served as Vice President of Strategy for the Oslo Freedom Forum since its inception in 2009. In his work, Alex has connected hundreds of dissidents and civil society groups with business leaders, technologists, journalists, philanthropists, policymakers, and artists to promote free and open societies. Alex’s writing and views on human rights and technology have appeared in media outlets across the world including The Atlantic, BBC, CNN, Fast Company, The Guardian, Monocle, The New Republic, The New York Times, NowThis, NPR, Quartz, TIME, The Wall Street Journal, and WIRED. He has spoken at universities ranging from MIT to Stanford, presented at the European Parliament and U.S. Department of State, and participated in Singularity University events around the world, where he serves as faculty and lectures on bitcoin and the future of money. He currently lives in the San Francisco area.

Interviewed by Marcus Dapp

Marcus Dapp (MD): Before we dive in – what is the HRF doing and what is your role there?

Alex Gladstein (AG): Sure, the Human Rights Foundation is a civil liberties organization based in New York and founded in 2005. We work on promoting civil liberties in authoritarian regimes around the world. And I’m the Chief Strategy Officer; I help with growth and fundraising, marketing and external partnerships, and in my time there (I’ve been there almost 15 years) I’ve worked very closely with all of our programs and, in particular, focused on the intersection of technology and human rights.

MD: What is the state of human rights in the world today, while our societies undergo this digital transformation? Which rights thrive and which suffer in the process?

AG: As we shift to a fully electronic world, in terms of the way we communicate and interact with each other, most civil liberties are at risk.

Whether it be your speech, your right to own something, your ability to cooperate or assemble with your fellow humans, your right to privacy… These things are all under attack because governments are able to harness networked computers and analyze massive amounts of data.

You know, modern society is built in a way, where you give up all this information and you trade off of these different freedoms for convenience and speed and comfort.

I think the “natural order of things” as we move to the electronic society is centralization and surveillance. But thankfully there’s a disturbance in the force, a positive disturbance and that is encryption – the ability to individuals to communicate privately with one another, using code, in a way that could not be spied on by even the most powerful government. That made a massive asymmetry and helped shift power back to individuals over time throughout the last few decades. And now it’s like a superpower.

That’s what the cypherpunks built their legacy on and their goal was to create digital cash. That’s what Bitcoin is, what Satoshi created: digital cash. That’s very powerful to me, because it helps us to challenge the surveillance state, and it also helps to present a different model of a political economy that’s not the post-1971 political economy that we’re so used to, but which just takes freedoms away from individuals. In my work at HRF I’ve been observing both phenomena, the rise of surveillance around the world, but also the rise of arbitrary state power over the money system. These two things come together in Bitcoin and in this global movement of people who are peacefully resisting.

MD: Talking about money, most people just use it: they consider it a neutral instrument to just go about their affairs. Many cannot explain what fiat money is, let alone question it. What is the role of the fiat money system for nation states today in your perspective?

AG: The important thing to understand is: money is not neutral. It is biased, it has preferences, and it favors those who create it. That is very different from the world we used to be in. It’s important to remember that, even though banks essentially have created money for the longest time, in a modern economy it’s not necessarily true that the government creates all the money. A lot of what we would consider money is, firstly private-sector created. Secondly, it is credit, promises to pay, and then the whole financial structure that sits on top of that.

Up to World War I and arguably even up to 1971 in some respects, at least the system through which nations interacted with each other at the geopolitical level was rooted in something real. The way nations balanced their payments with each other pre-World War I, and to lesser degrees as we got closer to 1971, was rooted in this concept that you could settle your debts in gold.

The ultimate monetary good used to be gold. And then, throughout the first 60 years of the 20th century, gold was hunted down, cast out and intentionally demonetized – largely by the US Government – and replaced with American debt. American debt became the highest monetary good, the “US Treasury”, the savings instrument for other nations, as well as the premium collateral for financial markets. So, the risk-free asset used to be gold, now it was American debt. That process began, arguably, in World War I and was accelerated in the 30’s. We went back to the gold exchange standard a little bit in 1944, whereas FDR totally demonetized gold domestically.

The US realized, “Let’s try to make a system where everybody uses dollars around the world.” And the way that they convinced people to do that in 1944 was to say that you could redeem it for gold at a fixed rate, $35 per ounce of gold. People believed us and we tried to hold that peg for a long time.

Originally it was easy because we were this massive creditor nation, and we have this balance of payments surplus. Throughout the Cold War that changed, and after the Korean War we were a debtor nation and this relationship, this peg, started to become very difficult to hold, even in the late 50s. And in the 60s, we had to basically do price-fixing with other governments to the London gold pool and it ended up collapsing. Finally, in 1971 we defaulted on our debt. So, $50 billion short-term dollar liabilities held by other nations went from being IOUs, like “I owe you gold” to “I owe you nothing,” there is nothing here. The US debt got baked into the monetary base.

That has had profound implications on the world and if you just look at any sort of social indicator since the 70’s: inequality, the rise of the 1%, stagnant wages, explosive equities, the rise and the cost of standard of living, making it difficult for the average working-class person versus the obscene wealth accumulated by the 1%. These are some of the things that have happened: the financialization of the world, the hollowing out of the American economy.

These things have happened in the last 50 years. And it’s because of fiat money.

I think that the fiat money system is about constraints on government behavior, especially in the US. The US supplies the world with its savings instrument in our debt. This has created some perverse incentives that trickled down throughout not just American society but throughout the world.

Now, that era seems to be – I wouldn’t say ending – but it’s certainly unraveling a little bit and other countries are starting to do more business between each other in their own currencies. The dollar is facing extreme pressure. We’re seeing inflation, we haven’t seen since the 70s, maybe 60s.

You know, there is only one way out for the fiat system: It’s to print more money.

In the previous monetary era, you couldn’t do that. These countries had to sell off assets, they had to devalue, they had to repeg, they had to cut spending, there were consequences. Today we’re in “Modern Monetary Theory” essentially and the only limit is inflation. Well, how do they reduce the money supply? They claim through taxation. I don’t think they’re going to do that. We’ve seen this behavior before: Nixon could have devalued, basically repriced the dollar against gold. He didn’t have to default on our debt. But then the people would have known that he was debasing the currency and they don’t like that.

It’s the same thing here: the government’s just kicking the can down the road.

And eventually, how are you going to convince people to invest in our debt? You have to raise the interest rates, there is no other way. I mean, who’s going to buy American debt that is going to yield negative? Trillions of dollars invested in that way, today. I don’t see that lasting forever. People are going to realize they can go to Bitcoin.

I think that dynamics are going to change massively and this whole thing of “interest rates to zero” … well, good luck, no one’s going to buy your debt! People are buying that debt now, because they view it as a risk-free asset, so they’re willing to pay. What if I were to tell you that over the next decade there will be a psychological shift and people will start seeing government debt as risky?

MD: Let’s make this concrete. One country this year was hit by “Lightning”, so to say. Its name is El Salvador, which means “the Savior” in English. So, what would Bitcoin save the country from?

AG: Bitcoin is a completely different structure than fiat money. It’s an asset money that increases your purchasing power as a worker over time. Your wages will go up over time if you save in bitcoin.

That is totally different from today, where wages go down. The time and energy that you put in lose value very quickly over time. With bitcoin they gain value. It’s as simple as that. If the Salvadorans start to shift into this economy, they’re going to be massively advantaged. Not only are they going to have the asset itself, but they’re going to have the lifestyle, the technology, the know-how.

Other countries are going to call them to find out how to do this, like they’ll have enormous expertise and know-how to get this done. A lot of things can be said about the ruler of the country, who I view as anti-democratic, but that’s separate from the decision to adopt Bitcoin as legal tender. They could have chosen a China surveillance coin or God knows anything else. The decision to choose open, decentralized, scarce public money was a remarkable one. And it won’t be the last country. There’ll be enormous benefits coming to that country, which is hilarious because the economic orthodoxy sees it as a crazy risk.

Every other country is going to adopt Bitcoin one way or another. I don’t know whether it’s as a reserve asset or as legal tender – it’s inevitable.

MD: The criticism of Bitcoin has taken a specific spin with the ESG (Environmental, Social, Governance) debate: Bitcoin is boiling the planet, wastes energy, proof-of-work, … What’s your take on the position that Bitcoin is bad according to these ESG metrics?

AG: I think our current fiat money system is unsustainable and is rooted in the petrodollar, it’s connected with oil. So, we need a different system to break our reliance on oil and fossil fuels.

I think Bitcoin can run entirely on renewable energy and nuclear and that’s a bright future for the planet if our money system runs on renewables. The current money system runs on fossils. It relies on this relationship with energy in that way. You’re never going to get a green movement, if your money is based on black gold, that’s just not going to happen.

I think that people really get hung up on the early history of bitcoin mining and, and how it was all this Chinese coal. It’s none of that anymore. China kicked out all the miners. Yes, the energy mix is what it is. I still think it’s much greener than most industries by far.

And you have to think of the benefits it provides to the tens of millions of people around the world. We’re talking something that is literally empowering tens of millions of people around the world, and it generates like half the carbon footprint of the cruise ship industry.

So, not only is it quite efficient in terms of its impact versus what it does, but I think it’s going to get greener over time and it’s going to totally change humans relationship with energy. You know, I wouldn’t be surprised if in the future, bitcoin mining is built into our homes and our grids.

There’s this elegant demand-response thing that can be done with Bitcoin that I’m excited about. If you get enough bitcoin mining, you’re not going to have these power crises, when storms come, and you have blackouts. Bitcoin miners can just turn off the power and it can shift over to the grid.

Also, I’m excited about developing countries being able to unlock these renewable resources that they all have – solar, wind, geothermal. They have massive renewable resources, but they don’t use them because it’s hard to get financing to build those farms and connect them to the grid. Well, now you can get financing to do it if you’re mining Bitcoin. So, I’m excited about that energy piece.

MD: Within the energy and mining debate, there’s also much talking about consensus mechanisms. Ethereum is very much pushing Proof-of-Stake, we also know Bitcoin stays with Proof-of-Work. What’s your take on that, because people are saying, Proof-of-Stake is much more energy efficient?

AG: I think that’s a very surface level understanding of what’s going on. Proof-of-work is a way to create a new financial system. Proof-of-Stake is the existing financial system, meaning that the people who have the most capital get to make the decisions. In Bitcoin that’s not the case.

If you have billions of dollars’ worth of bitcoin versus someone who has $10, neither of you can change the monetary policy. Wealth doesn’t benefit you in that regard. In the fiat system, if you’re a billionaire you can get a bailout, you can literally influence the monetary policy. Proof-of-Work exists to create a new standard, a new paradigm, where we’re all equal in front of the eyes of the law.

That requires energy expenditure, and it will, I think, improve our relationship with energy. It will incentivize more renewable energy to be unlocked and it’ll put us on a much more intense quest for the cheapest, most efficient energy in the world which I don’t think is going to be coal or oil.

The existing financial system is extremely negative for the environment, very tied to fossil fuels. Proof-of-Stake doesn’t change that at all. It is just an imitation of the existing system.

MD: The second aspect of this ESG is the social aspect. On one side, there are people claiming Bitcoin is a Ponzi scheme, it’s a bubble or several bubbles. Others say it’s about financial inclusion and human rights. How do you see that? What can the social impact of Bitcoin be?

AG: The social impact of Bitcoin is global. Tens of millions of people are benefiting today from Bitcoin from a social perspective. It’s giving them financial inclusion and empowerment at a greater scale than any company’s ESG initiatives are giving. There’s no company ESG initiative that’s really helping, say, somebody in rural Sudan. That’s probably not going to happen.

However, if they have a cell phone and they can learn about Bitcoin and they can start using it, and they can begin save themselves from that country’s rapacious inflation, right? This is something that anyone can use around the world. It’s incredibly powerful and I think the most effective investment one can make, is in the Bitcoin network.

The criticisms you mentioned are not true. It’s not a Ponzi scheme. It’s not something where there is some Bernie Madoff type who’s just taking in money and replacing with other people’s money. This is not happening. Everything in Bitcoin is auditable and you can look at it, you could look at all the transactions, you could look what’s happening. And what’s happening is, people are opting out of the fiat system into something new.

People won’t necessarily use it for the ideological underpinnings. They’ll use it, because it’s better than going to the post, in the same way that people used email because it’s better than going to the post office, people are going to use Bitcoin because it’s better money. It’s better than go to a bank and make a wire – it’s ridiculous. So, I think that the social arguments against Bitcoin are weak and that evidence for Bitcoin being a powerful social tool is staggering.

MD: Finally, governance: In a conversation with Saifedean Ammous, you were arguing in favor of bitcoin being democratic (AG: Yes!), separation of powers, etc. On the other side, Saifedean argued more for an anarchistic perspective. How do you see that conversation?

AG: It was a great conversation. My point was that Bitcoin is anti-authoritarian. What does “democracy” mean? “Rule by the people.” To me, Bitcoin is ruled by the people, not by the government, not by a king or a dictator. What I was trying to get at was that ‘demos’, the ‘people’, and the word democracy is accurate of Bitcoin.

The point of that whole conversation was merely to show that while Bitcoin is not a democracy in the sense of going to voting, it is a democratic money, because I believe it’s ruled by the people and not by a dictator or a king or a tyrant. That’s my thesis.

MD: Would you say, is it easier to make the case for Bitcoin in an authoritarian regime than in Western liberal democracies? Why should your or my fellow citizens care for Bitcoin beyond “number go up”?

AG: Ultimately, Bitcoin matters for the same reasons for everybody, it’s just a matter of urgency. In dictatorships all ‘law and order’ collapsed and there’s secret police that rules everything. So, it’s a little different than in a system where we still have law and order, like in Germany or Switzerland.

But what’s happening is gradual increase of control by the government and corporations over money, spending habits and behavior – your life, really. Bitcoin allows us to check this intruding behavior. It allows us to have digital cash, a parallel system that they don’t control. Most importantly, it allows us to have a currency that they can’t arbitrarily debase. I think those things are all very, very important, even if you live in a wealthy country.

It matters for everybody, whether you care about privacy or about financial freedom and preserving savings. All of it matters. You want to put your money in a bank in Europe? It’s a negative interest rate, right? So, how about not negative interest rates? (laughs) How about I don’t give my money to the bank and instead I keep it in bitcoin and I watch it appreciate over time? I think a lot of people are going to start understanding why that’s very powerful.

MD: We don’t know what the future holds and for Bitcoin many scenarios seem to be possible. Let’s outline two extremes: one is governments trying to ban or stop it. What are your thoughts on banning?

AG: No, I think it’s not going to be stopped, but bans are very likely! In fact, they happen all the time. The Chinese Government just banned mining, the Norwegian government is threatening to ban mining, the Nigerian Government is essentially banning use of bitcoin by freezing bank accounts that are connected to cryptocurrency trading platforms. There are all kinds of restrictions. We should expect a proliferation of all kinds of restrictions and bans.

But they’re not going to work! So, the government can try as much as it wants. What do you do? It’s an idea, it’s an invisible asset that can be traded peer-to-peer without government intrusion, it’s not possible to stop. I think the way it ends up happening is they realize that it’s a fool’s errand and they end up figuring out how to benefit from bitcoin.

El Salvador is obviously a good case, there are lots of states in the United States that are good cases, there are cities, City of Miami, the new Mayor of New York City, states like Texas and Wyoming. You have governments even, like Singapore, Switzerland, Norway, whose sovereign wealth funds, their savings really, are either invested directly in bitcoin or exposed to bitcoin companies or assets.

We are going to see a lot more of that and less like a draconian ban which isn’t going to work. I mean they can try, but it’s just not going to work.

MD: The other scenario would be “hyperbitcoinization”, the thing many Bitcoiners are looking forward to. When do you think will that happen? How will it look like? What will happen to fiat currencies, how will nation states react?

AG: I think we probably have a transition period where we go back to like a gold exchange standard type of thing where governments peg their currency to Bitcoin at a certain exchange rate. I don’t know how long that lasts because Bitcoin isn’t gold. Gold is not efficient for medium of exchange, it’s pretty terrible for that: people want to save it, there are theft concerns.

Bitcoin is a very elegant medium of exchange.

I don’t know how long the fiat system lasts once that first concession is made. It’s very possible we live in a world where we just interact exclusively with Bitcoin and Bitcoin instruments. I find it hard to believe that fiat’s going to hold on.

Fiat is an experiment, it’s relatively recent in history. And I’m not talking about commercial banks creating money. That will continue to be the case in many ways. I’m talking about the underlying, about what the central banks actually have. It’s only somewhat recent that they don’t have metal or something scarce, that they just have paper promises. That’s entirely a creation of the last hundred years.

We’ve been around for a lot longer than that and I just think that that’s going to turn back to bitcoin. And then what does a bank do? You want to deposit your bitcoin with the bank? Well, they’re going to have to offer you something very appealing, right? We’re talking very high interest. You have to start thinking about it: interest paid in what, in bitcoin? I think the whole system is going to change.

Can banks afford to create loans and deposits in the same way in a Bitcoin system? Probably not, probably slightly different. Again, I still think banks exist, I still think you’ll have bank creation of money. And, of course, credit – people are going to borrow and all these things. It’ll just be a completely different paradigm.

MD: 2022 is around the corner. Do you have any predictions in the Bitcoin space, like, for example, on which continent the next big Bitcoin country will emerge?

AG: It’s hard to say. It’s probably one of these things that happens when you least expect it. Would you have picked El Salvador? Really? That was not on anybody’s “bingo card” two years ago.

Could it be Ukraine or Columbia, or one of these countries that’s hinting at it? Maybe… But maybe it’s also a country that nobody’s thinking about.

Honestly, I think legal tender is an aggressive step. I don’t think there’s going to be that many countries that do that in the near future. That was kind of … puh … going a decade ahead. But I think governments that buy bitcoin, that integrate it in some way… You have already seen this happen in America at the state and city level, politicians taking their paychecks in bitcoin. That’s just going to continue and increase.

Bitcoin is going to be a huge part, I believe, of the 2024 political cycle in the United States. So, hard to say.

MD: Alex, thanks a lot for your precious time. Where can people learn more about your work?

AG: Follow me on Twitter at @gladstein. You can follow the Human Rights Foundation at hrf.org and you can come visit the Oslo freedom Forum in Norway on May 23 to 25 of next year. We’re going to have a full-scale Bitcoin Academy, so I hope you can all come. It’s not too far for most Europeans. So come check it out, thank you.

MD: Thank you very much, Alex.

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