Since the dawn of humanity, individuals have entered into transactional relationships to facilitate their own self-interests. Even when not monetary in nature, these transactional relationships ultimately allowed individuals to better themselves as two parties could engage in a process that left both sides better off—two parties, one agreement, zero intermediaries.
Unfortunately, this basic arrangement has become endangered over the past few decades and is now on the brink of extinction. The wedging of government surveillance between two parties who exchange goods and services has weaponized the very existence of transactional relationships. The government is gaining access to transactions through the third-party intermediaries that assist in facilitating the parties’ agreement. Many are familiar with this concept as the “third-party doctrine.” The more people flock away (whether by their choice or not) from cash transactions in favor of online payment tools, the more cemented the third-party doctrine becomes in America.
In May 2021, the Federal Reserve released their annual Diary of Consumer Payment Choice, which showed that cash transactions in 2020 accounted for 19 percent of all payments among U.S. consumers. This illustrated a decrease of 7 percent from 2019. It shouldn’t be all that surprising, as the COVID-19 pandemic facilitated mass-lockdowns policies and burdensome conditions that made peer-to-peer transactions more difficult, if not impossible. Whether or not the 2022 report will show a further decrease in cash transactions remains to be seen. However, it’s no secret that almost all Americans continue to see a great rise in the use of online payment tools in their everyday lives.
It’s also no secret that “big brother” understands the significance of these online payment tools as well, as evidenced by $600 IRS reporting threshold for financial institutions that was originally proposed to be included in the infrastructure bill. Fortunately, that provision did not make it into the final bill. Unfortunately, a similar reporting regime was already implemented in the American Rescue Plan passed last March, which requires mobile payment apps to report commercial transactions greater than $600 to the IRS. While commercial transactions differ from personal transactions, monitoring commercial transactions (broadly defined) would be the logical start to any financial surveillance regime. This paradigm shift is well underway and should be troubling to any American.
This is why I’ve been a longtime advocate for cryptocurrencies that facilitate permissionless peer-to-peer transactions – structured like Bitcoin. As Satoshi Nakamoto recognized when the Bitcoin whitepaper was published Oct. 31, 2008, there needs to be a system that “allow[s] any two willing parties to transact directly with each other without the need for a trusted third party.” This concept hasn’t lost popularity since it was published. Cryptocurrencies have flourished largely because they offer the benefits of transactional convenience, like online payment tools, while also structurally ensuring the privacy of traditional peer-to-peer transactions. Thus, the government has no intermediary to weaponize through the third-party doctrine, although that likely that won’t stop them from trying.
It would be ignorant to think that government bureaucrats will stop pursuing an agenda to construct a regulatory periscope that peers into every handshake agreement, including transactions made via cryptocurrencies. We cannot risk another surprise proposal hidden away in a large piece of legislation that would further broaden the surveillance state and attempt to impede permissionless transactions. Those who believe in the right to transact privately must aggressively work to reclaim financial privacy.
As a member of Congress, I believe it is imperative for the legislature to protect cash transactions and the attributes of cash transactions that cryptocurrencies offer. I know I’m certainly not the only member who believes this (on either side of the aisle), but I fear that complacency and the entrenched surveillance state advocates will allow another similar surveillance proposal to pop up and catch us off-guard. We must remain vigilant – especially as government finally begins to regulate crypto and considers implementing tools like Central Bank Digital Currencies that could be even more abusive of financial privacy.
Warren Davidson represents Ohio’s 8th District. He is a member of the House Financial Services Committee and is ranking member of the Financial Technology Task Force.